CWS CWS Business Succession Planning

Question 1

Which type of buy-sell agreement requires surviving business owners to purchase a deceased partner's interest?

Accepted Answer

Cross-purchase agreement

Answer

Entity purchase (redemption) agreement

Answer

Wait-and-see agreement

Answer

One-way buy-sell agreement

Question 2

What is the primary advantage of an entity purchase (stock redemption) buy-sell agreement over a cross-purchase agreement in a business with many owners?

Accepted Answer

Simplicity — the business holds fewer insurance policies than individual owners would

Answer

Lower cost basis for surviving owners

Answer

Better capital gains tax treatment

Answer

No need for life insurance funding

Question 3

A family limited partnership (FLP) is commonly used in business succession planning primarily for which purpose?

Accepted Answer

Transferring business interests to family members at a discounted valuation for gift and estate tax savings

Answer

Eliminating all estate taxes through unlimited marital deduction

Answer

Converting ordinary income to capital gains

Answer

Avoiding step-up in basis at death

Question 4

What does the term 'key person insurance' refer to in the context of business succession planning?

Accepted Answer

Life insurance on a business owner paid for by the business to offset financial loss from that person's death

Answer

Health insurance for essential employees

Answer

Disability insurance for rank-and-file staff

Answer

A buyout agreement funded by a savings plan

Question 5

Under IRC Section 6166, what benefit is provided to estates with a significant closely held business interest?

Accepted Answer

The ability to defer and installment-pay estate taxes attributable to the business over up to 14 years

Answer

A full estate tax waiver on the business portion

Answer

A stepped-up basis for all business assets

Answer

Exemption from the generation-skipping transfer tax

Question 6

Which valuation discount is typically applied to a minority ownership interest in a closely held business due to the lack of ability to control operations?

Accepted Answer

Minority interest discount

Answer

Lack of marketability discount

Answer

Blockage discount

Answer

Built-in gains discount