Funding the contract with life insurance, if the owner dies, will provide the immediate money needed to purchase the owner`s interest. Often, insurance is the only way for a remaining homeowner to find the money to purchase the deceased member`s interest. A buy/sell agreement should be evaluated on a regular basis to ensure that the valuation clause and the amount of insurance are updated. The agreement should provide that any difference between the LLC interest FMV and the amount of insurance can be financed by cash, other assets or by a debt payable to the estate. An agreement is considered to meet all these requirements when more than 50% of the value of the restricted property is held directly or indirectly by persons who are not members of the transferor`s family (Regs. Art. 25.2703-1 (b) (3)). This applies only if interests belonging to non-family members are subject to the same restrictions as real estate owned by dec. Members of the transferor`s family include the transferor`s spouse, the ceding`s ancestors or the transferor`s spouse, as well as any other person who is a natural object of the ceding premium. The statutes and rules do not specify who is a natural object of the ceding premium, so it is not certain that siblings and cousins are automatically covered by this definition. (Gloeckner`s second circle found that a person without blood or without a conjugal relationship is not the natural object of the scammer`s premium height, unless his relationship is so close that it appears to be related.) This finding is based on the relevant facts and circumstances. In general, a long-time personal friend is treated as an unrelated person.
A buy/sell agreement is comparable to a similar arm length agreement if the agreement is an agreement that could have been reached as part of a fair transaction between independent parties of the same company who resign themselves in arm`s length (Regs). Art. 25.2703-1 (b) (4)). An agreement is considered a fair agreement if it is consistent with the general practice of unrelated parties under agreements negotiated in the same company. Concepts that reflect the state`s lag provisions can also be considered comparable or poor. This requirement creates a standard of commercial adequacy that did not exist before the adoption of P. 2703. However, in Lauder`s estate, the Finance Tribunal gave an overview of the application of this test. The tax court held that a buy/sell agreement was merely an instrument for reducing inheritance tax when (1) considerations of wills influenced the parties concerned and (2) the formula of the agreement did not reflect the full and reasonable consideration, since it does not set a fair price for interests. The formula used was an adjusted book value formula that the court may have found arbitrary. Since the agreement did not pass the non-equipment test, the terms of the agreement did not control the value of the interest inheritance tax.