In accordance with Regulation 20.2031-2 (h) or Section 2703, a price set in a purchase-sale contract may not be binding on the IRS for inheritance tax purposes. Thus, the estate of a deceased owner is required by the agreement to sell its shares in the business at the contract price, but it may have to declare a higher value for federal property tax purposes and, therefore, pay inheritance tax on that additional phantom value. In practice, the parties must be able to demonstrate that the agreement was intended to offer a fair price in all cases (which can be updated from time to time) and not to play the inheritance tax system. A detailed discussion on the actual requirements of the Regatta. 20.2031-2 (h) and Desart 2703 are beyond the scope of this article. In order to optimize results for all stakeholders, appropriate planning and advice is needed. At a basic level, there are two methods for structuring buy/sell arrangements in the event of death. Either the surviving shareholders can acquire the deceased`s shares, or the company can acquire the deceased`s shares by withdrawing the shares. If the agreement provides for the surviving shareholders to acquire the deceased`s shares, the obligation to buy/sell may be financed by shareholder-owned insurance and may be financed by company-owned insurance, using the “business withdrawal” method. As with many things when it comes to businesses, a buy/sell contract is not something that a single advisor should consult and, ideally, it should be a collaborative approach. It is recommended that you let your business lawyer develop the agreement, that your accountant verify the tax impact of the operation of the agreement, and that the funding be properly verified by a financial advisor or life insurance representative.
Eric Benchetrit is a consultant in the financial and vordener services sector, regarded by his peers as one of the most knowledgeable and competent authorities in his field, and who offers financial advisors, life insurance agents and industry experts in the context of complex tax and estate planning. Eric`s business approach uses a tireless commitment to professionalism and attention to detail using a collaborative and integrated planning style that works with the entire client`s consulting team. His communication style describes complex structures in easy-to-understand terms. For more than a quarter of a century, he has held various positions in the financial services industry, including marketing and distribution at the executive and wholesale levels for Canadian insurance and investment firms. He has also taught Seneca College`s Practical Financial Services Certification Program, whose graduates receive credits for CFP (Certified Financial Planner) and CLU (Chartered Life Underwriter). Over the years, he has participated in numerous conferences at industry events and has also appeared in radio and call programs. He has written articles and has been cited and profiled in several industry publications. He has been co-chair of Canadian and international delegations, met with the Prime Minister, parliamentarians, members of Congress and senators, and has a Specialized Honours B.A. from York University. He is married and has two children, lives in Thornhill, Ontario, and is a very active member of his community, was recently honoured for his volunteer work and has served on the boards of several non-profit organizations. For surviving partners, it avoids the problem and cost of borrowing and allows the company`s operations to continue without costly interruptions, strengthen its credit position and ensure continuity of management, ensure that ownership and control of the business remain in the hands of the surviving owners.