Buy-sell agreement in LLC funded by term life insurance

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Buy-sell agreement in LLC funded by term life...

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tresh

Posted 1/16/2007 11:01:20 AM

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Last Login: 1/20/2007 7:05:23 AM
Posts: 1, Visits: 3

I have 4 LLCs each with the same 4 members and one term life insurance policy on each member to fund a buy-out. The proceeds of the policy will be suffficient to buy out a member's interests in all 4 entities. But who should own the policies and be the beneficiery? If a new entity is created to own the policies, in a redemption the new entity will purchase the deceased member's and then own the deceased member's interest. How do we eliminate this entity as a new member? How are these typically structured when you have several entities all with the same partners/members?

Post #308

Mary Kay Foss

Posted 1/16/2007 5:41:16 PM

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Last Login: 3/12/2011 12:58:57 PM
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One of the exceptions to the *transfer for value* provision that makes life insurance proceeds taxable is when the transferee if a partner in which the insured is a partner. It seems that an existing policy could be transferred to any of the LLCs - that LLC would be the owner. If the buy-sell agreement directs that the LLC policy owner will purchase the decedent's LLC interests or that the policy proceeds would be transferred to the surviving LLC members and those individuals are obligated to buy out the interests, I think you're all right. Sometimes the insurance companies want to see the buy-sell agreements and could give you an opinion.

Maybe someone who has worked more with insurance than I can come up with a better answer.

Mary Kay Foss

Post #309

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