Legal Question in Business Law in Washington

Re: Buy/sell insurnace plan

A buy sell agreement is a contract between the parties, and it "can" say whatever the parties agree to, so, yes, the agreement can provide for a larger insurance plan to benefit the spouse of the married stockholder.

However, you may be confusing the multiple purposes of an insurance plan. If the purpose of the plan is to enable a surviving stockholder to purchase the interest of the deceased stockholder's estate, then the beneficiaries of the insurance plans should be the surviving stockholder or the corporation. The beneficiary would then use the proceeds to buy out the spouse or other heir of the deceased owner. Then the driving question is, what will be the value that needs to be purchased? If the two owners do not own equal shares (say one owns 60% and the other 40%), then that would dictate an unequal insurance plan.

If the insurance plan is intended to be a benefit apart from the buy sell, that is another matter. The amounts can be unequal, but bear in mind there will be tax implications. Further, in the interest of fairness, if the ownership shares are equal, the single partner should not be expected to agree to this unless he or she receives some other equivalent benefit.

I also encourage you to be sure your buy/sell covers other contingencies, including disability, bankruptcy of an owner (would you like the bankruptcy trustee to be voting shares?), divorce (this is a community property state; would you like an angry spouse voting shares?) and the decision to retire.

Buy sell agreements can be structured many creative (and legal!) ways to meet everyone's needs. Canned buy sell agreements off the internet are likely to address the needs of the "average" group of shareholders, but the chances are against these agreements being right for any given set of shareholders. There are also tax consequences no matter which way you set it up, and you should make sure you are aware of what those are.

Re: Buy/sell insurnace plan

This is one of those blended accounting and legal questions. Any decision you make should be based on both the legal and accounting consequences with special emphasis paid to exploring tax implications.

See your accountant first, then see an attorney, preferably one who has a good relationship with the accountant. In most circumstances, this will be the most cost effective way to approach the problem as well, since most CPA's charge less than attorneys.