Most closely held businesses have a buy-sell agreement somewhere. Few have one that has been reviewed in the last five years, and fewer still have funded it. The document exists. The plan behind it does not.
That gap stays quiet until the day it matters. By then the people sorting it out are usually a surviving spouse, a remaining partner, and the company’s cash flow, none of which signed up for the job.
What the agreement is supposed to do
A buy-sell agreement answers one question before it becomes an emergency: when an owner exits, who buys that owner’s share, at what price, and with what money. A complete one settles all three. Most of the agreements I see settle the first, gesture at the second, and skip the third.
The “who” is usually clear. The remaining owners buy, or the company redeems the departing owner’s interest. The “at what price” and “with what money” are where good intentions go to sit in a drawer.
The price almost no one updates
Open your agreement and find the valuation clause. If it names a fixed dollar figure, check the date next to it. A price the partners agreed on years ago rarely matches what the business is worth today, and a stale number cuts both ways. Set it too low and a departing owner’s family is shortchanged. Set it too high and the remaining owners overpay with money the business needs to keep running.
Some agreements use a formula instead of a fixed price, which ages better but not perfectly. A multiple of earnings that fit a five-person shop may not fit the company you have now. Others promise a future appraisal and leave the method undefined, which invites a fight at the worst possible moment.
The fix is not complicated. It is a scheduled review of the valuation method, written into the agreement, so the number reflects the business as it stands rather than the business as it was.
The funding gap
A buy-sell agreement is a promise to pay. Funding is the part that decides whether the promise is real.
Say two partners own a company and one dies. The agreement obligates the survivor, or the company, to buy the deceased partner’s half from the estate. Where does that money come from? If the answer is “the business will figure it out,” the business may spend years paying an installment note to a former partner’s spouse, out of the same cash flow it needs for payroll, debt, and growth. Owners fund these obligations in a few common ways, each with tradeoffs worth discussing with your advisors.
Life insurance is the most common tool, because it is designed to provide cash at the point the obligation comes due. It also raises structural questions, covered below, that changed recently.
A sinking fund sets money aside over time. It is simple but slow, and an early death can arrive before the fund is anywhere near the purchase price.
An installment purchase spreads payments over years. It requires no money up front but ties the company and the departing family together long after anyone wants to be.
Most owners assume they have funding handled because they bought a policy once. Whether the coverage still matches the current value of the business is a separate question, and usually an unanswered one.
The 2024 ruling that put older agreements back on the table
In June 2024, the Supreme Court decided Connelly v. United States, and the decision reaches every closely held business funded by company-owned life insurance. The Court held, unanimously, that life insurance proceeds a company receives to buy back a deceased owner’s shares count as a company asset that raises the company’s value, and that the obligation to redeem those shares does not offset it.
In plain terms: a structure many owners adopted specifically to handle a partner’s death can now increase the value of the deceased owner’s estate, and the estate tax that goes with it. The ruling did not change the tax code. It changed how a common funding structure gets valued, which is enough to make a pre-2024 agreement worth a second look.
There are alternatives, including cross-purchase arrangements that keep the insurance outside the company, and each carries its own tax and practical considerations. The right structure depends on your entity, your owners, and your estate plan, which is exactly the kind of question that should be answered before it is tested. This is a planning matter to coordinate with your attorney and CPA, not a do-it-yourself fix.
Where this connects to the rest of your plan
A buy-sell agreement is a business document with personal consequences. For an owner whose company is the largest asset on the family balance sheet, the agreement is also an estate document, a liquidity plan, and in many cases the single largest factor in whether a spouse and children are provided for without forcing a sale of the business under pressure.
That is why I review these agreements alongside the estate plan, the entity structure, and the family’s broader wealth-transfer goals rather than in isolation. For families with concentrated business wealth, the buy-sell sits at the center of how ownership, taxes, and legacy fit together. Family office level coordination across your attorney, CPA, and advisor is what keeps those pieces aligned.
What a real review covers
A useful review of a buy-sell agreement works through a short list of questions:
- Is the valuation method current, and is it scheduled to stay current?
- Are all the triggering events addressed, including death, disability, divorce, departure, and disagreement among owners?
- Is the obligation actually funded, and does the funding match today’s value of the business?
- Does the structure still make sense after Connelly, or does it deserve a second look with counsel?
- Does the agreement match your estate plan and entity documents, or do they contradict each other?
If you cannot answer those with confidence, the agreement is not finished. It is filed.
Advisory services offered through United Advisor Group, LLC, a Registered Investment Adviser (CRD #324205). Securities offered through Purshe Kaplan Sterling Investments, Member FINRA/SIPC. Ftacek Financial Services, LLC and United Advisor Group are independent entities. This article is for educational purposes only and is not individualized investment, tax, or legal advice. Consult your own advisors before acting on any strategy described.