Mr. and Mrs. Walker owned a lovely home in the middle of Morris County and also a beach house at the Jersey shore. They were and thought of themselves as regular folks and did not live on more than an average salary. When John got sick and fell into a coma he was taken to the hospital and he went through a cycle of recovery and relapse so that he spent slightly more than four months in either a hospital or rehabilitation facility or home. The doctors tried everything they could think of in order to return John to his family. He never regained the use of his faculties. He passed on and never regained his active life. Nancy had medical insurance but was left with bills totaling more than $135,000. Neither John nor Nancy had a Last Will and Testament. Nor did they have Living Wills (Advanced Medical Directives). Nor did they have General Durable Powers of Attorney. When John got sick, Nancy did not know where the money was to pay the mortgages on each home.
When she finally found John's checking account and savings account, she found that they were in John's name alone and she could not access the money needed to pay the doctors or the mortgages. Her choice was to hire an attorney and go to court to ask the Judge for an order using John's money for the payment of these and other regular family bills. A power of attorney, available for less than $250.00, could have saved her the several thousand dollars that the court action required. Not to mention aggravation, late charges and additional costs encountered just about everywhere.
The worst was not having a Last Will. Nancy had to petition the court to become the administrator of her husband's estate. This required her to hire another attorney to seek the permission of the court to distribute what was seen as essentially her own money. Many thousands of dollars was spent in order to do what simple estate planning documents are designed to do. Don't proceed into middle age without a Last Will and Testament, a Living Will and a General Durable Power of Attorney.
Brian and Jeffery Jackson have owned Jackson's Tax Services for the past 12 years. In a recent decision about the future of their business, they concluded that because they rely so heavily on one another for every aspect of running their enterprise, the loss of either one of them due to disability or death could have a devastating impact on the business.
The two partners seek to develop a customized business protection strategy called a Cross Purchase Buy-Sell Agreement. It will help the ensure the continuity of the business should Brian orJeffery become disabled or die. At inception, the owners enter into an agreement that if either should become disabled or die, the survivor will buy out the business interest from the individual or his estate using an insurance policy for all or part of the payment. The partners each own policies on the other so that in the event of an incident, the policy proceeds will pay out to the policy holder and he will have a payment to use to acquire the shares of the other partner. In the event of the death or the disability of either owner, the disabled owner receives income or the estate receives policy proceeds in the event of a death. The remaining partner receives 100% of the shares of the company because he is able to pay the disabled partner or the decedent's estate what is needed to provide the surviving partner with complete ownership. An insurance company is vital to this purpose and will have many suggestions to refine this strategy for current or customized use.
A buy sell agreement allows a smooth transition to a new ownership arrangement and it can reduce the potential delays , conflicts, and expenses of those making a claim on the business. The surviving partner will receive a "stepped-up" basis under this agreement for the interest he just bought thereby reducing the amount of taxable capital gain upon the future sale of the business interest. He also gets peace of mind knowing that an orderly succession plan is in place. Usually, the agreement will provide a firm and fair valuation plan for the interest being transferred.
We can arrange a customized agreement for you whether you are working with one or many other partners.The cost is modest and is insignificant when compared to the costs involved when no agreement is in place.Let us help you.