For a sole proprietor, a buy-sell plan (often called a ) is a legally binding contract that ensures the business continues and provides liquidity to the owner's estate after their death, disability, or retirement. Without such a plan, the only options are often to dissolve the business or leave it to an heir who may not want to run it. Core Structure: The "One-Way" Plan
: The buyer (e.g., the key employee) typically owns the policy on the life of the proprietor and is the named beneficiary.
: Premiums paid as bonuses are taxable income to the employee. sole proprietor buy-sell plans
: The business often "bonuses" the premium payments to the employee, who then pays the insurer. Tax Considerations :
: Typically a key employee , a family member, or even a competitor. For a sole proprietor, a buy-sell plan (often
: Life insurance is the primary funding mechanism because it provides immediate cash when needed to activate the sale. How the Funding Works
Life insurance ensures the buyer has the funds to fulfill their legal obligation to purchase the business. : Premiums paid as bonuses are taxable income
: Death benefits paid to the buyer are generally income-tax-free.