A buy-sell agreement identifies a buyer for a business in the event of an owner’s death. In a unilateral arrangement, a third party (typically a key person and/or family member working in the business) is obligated to purchase the interest of the departing owner. To fund the buyout, the third-party purchases a life insurance policy on the life of the owner. Upon the death of the owner, the third party receives the life insurance proceeds and purchases the deceased owner’s business interest from his or her estate. The third party owns the business, and the non-liquid business interest is converted to cash for the heirs.
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