Values established by buy-sell agreements may be ignored, may be controlling, or be only a factor to consider in determining values. The Tax Court listed the following factors for making the buy-sell agreement price controlling for federal estate tax purposes:
- The price must be fixed or determinable
- The agreement must be binding on the parties both during life and after death
- The buy-sell must have been entered into for bona fide business reasons
- The buy-sell agreement must not be a substitute for testamentary disposition
However, another court rejected the buy-sell agreement as controlling because:
- The purchase price was fixed and not subject to any reevaluation
- Payment terms were too generous, indicating the testamentary nature of the agreement
- Failure to have a professional valuation performed at the time of entering the agreement.
Are your clients adequately protected by the valuation provisions of their buy-sell agreements? Should you need business valuation assistance or have questions, please call one of our credentialed professionals at (615) 822-8342 or contact us via email.