Cross-Purchase Buy-Sell Agreements

What Is a Cross-Purchase Agreement?

A cross-purchase agreement is a tool used by business owners to assure that "business as usual" continues if co-owner dies. Like an entity or stock redemption agreement, the cross-purchase buy-sell agreement stipulates that—

• a deceased owner's estate must sell the business interest to surviving owners, and
• the surviving owners will buy that interest.

There are no exceptions—the estate must sell and the survivors must buy.

A cross-purchase agreement also establishes the price to be paid for the deceased owner's business interest. The price is based on: (1) a definite fixed amount stated in the agreement; or (2) a formula by which a definite price can be established. Current tax law has made the second method the more prudent choice in recent years.

Purpose of the Cross-Purchase Buy-Sell Agreement

Policies Owned by the Deceased Owner

Using Life Insurance to Fund the Agreement

Income Tax Considerations

Why Cross-Purchase Agreements Are Used