A business transition plan may include a buy-sell agreement with your co-owners that outlines the terms of the sale, including triggering events and how and when the sale price will be paid. There are a number of ways to fund a buy-out at retirement:

A business transition plan may include a buy-sell agreement with your co-owners that outlines the terms of the sale, including triggering events and how and when the sale price will be paid.

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Sinking Fund

A Sinking Fund is when the buyer sets dollars aside to accumulate to the purchase price in advance of the sale. These funds are often held in an interest-bearing account and, depending on the time frame, the sinking fund may or may not have accumulated the funds needed by the time the purchase takes place.

Installment Sale

The buyer gives the seller a promissory note and then makes payments towards the purchase price over two or more years. The parties to the agreement have a significant amount of flexibility in determining the terms of the note, including the interest rate, the amount of each payment or the duration of the note.

Gifting the Business to Family

First, gifting lets you shift the business interests to those of your choice. You control both the timing and the size of the gifts. Second, gifting can reduce the value of your interest in the business, both for purposes of future estate tax liability or a future sale. Valuation discounts may be used to further reduce the value of the transfers. There are several ways to make gifts including Annual Exclusion Gifts, Lifetime Transfer Tax Exemption, Gift Savings Devices, and Bequest or Transfers at Death.

Estate Equalization

If your plan is to transfer your business to family members, leaving equal shares of the business to family members actively involved in the business as well as those who are not can often cause conflict. Leaving the business to only the participating family members can also cause conflict within the family. So, what to do? One option to keep peace within the family is to leave non-business assets to non-participating family members to equalize the distribution of your estate. Another option is to purchase a life insurance policy to help achieve an equitable transfer of your estate. You can leave your business to family members involved in the business and use the life insurance proceeds to provide an inheritance for other family members.

Sinking Fund

A Sinking Fund is when the buyer sets dollars aside to accumulate to the purchase price in advance of the sale. These funds are often held in an interest-bearing account and, depending on the time frame, the sinking fund may or may not have accumulated the funds needed by the time the purchase takes place.

Installment Sale

The buyer gives the seller a promissory note and then makes payments towards the purchase price over two or more years. The parties to the agreement have a significant amount of flexibility in determining the terms of the note, including the interest rate, the amount of each payment or the duration of the note.

Gifting the Business to Family

First, gifting lets you shift the business interests to those of your choice. You control both the timing and the size of the gifts. Second, gifting can reduce the value of your interest in the business, both for purposes of future estate tax liability or a future sale. Valuation discounts may be used to further reduce the value of the transfers. There are several ways to make gifts including Annual Exclusion Gifts, Lifetime Transfer Tax Exemption, Gift Savings Devices, and Bequest or Transfers at Death.

Estate Equalization

If your plan is to transfer your business to family members, leaving equal shares of the business to family members actively involved in the business as well as those who are not can often cause conflict. Leaving the business to only the participating family members can also cause conflict within the family. So, what to do? One option to keep peace within the family is to leave non-business assets to non-participating family members to equalize the distribution of your estate. Another option is to purchase a life insurance policy to help achieve an equitable transfer of your estate. You can leave your business to family members involved in the business and use the life insurance proceeds to provide an inheritance for other family members.

A big portion of your retirement plan is probably dependent on selling your business. With a carefully crafted business transition plan, you can help meet your retirement goals and successfully transfer your business.