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

A cross-purchase agreement obligates the surviving owners to personally buy the deceased owner's business interest, funded typically through life insurance.

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

An entity purchase agreement requires only one life insurance policy per owner, whereas a cross-purchase requires each owner to hold policies on every other owner.

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

FLPs allow business owners to transfer limited partnership interests at valuation discounts (lack of control and marketability), reducing gift and estate tax liability.

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

Key person insurance is a life or disability policy owned and paid for by the business on a critical individual, providing funds to offset the financial impact of that person's death or disability.

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

IRC Section 6166 allows estates where the closely held business exceeds 35% of the adjusted gross estate to pay estate taxes in installments over up to 14 years at favorable interest rates.

CWS - Certified Wealth Strategist Practice Test

CWS - Certified Wealth Strategist Practice Test

CWS CWS Business Succession Planning