A trusteed cross purchase agreement is a cross purchase buy-sell agreement that uses a third party (the trustee) to ensure that the agreement is carried out. The buyers named in the agreement are obligated to buy, and the sellers (or estate) are obligated to sell the business interest at the occurrence of some specified triggering event. The sale of the business interest is overseen by the trustee, a neutral party responsible for seeing that the obligations are carried out between the seller and the buyer. The use of a trustee frees the family or estate from having to deal directly with the buyer of the business interest at an owner's death. The role of the trustee is generally more like that of an escrow agent, who does not necessarily manage assets held under his or her custody.
- You own a business
- Includes all the strengths of a buy-sell agreement
- Can provide a guaranteed buyer for the business interest
- Can provide liquidity for payment of estate taxes and settlement expenses (but only if agreement is funded)
- Can avoid potential conflicts of interest
- Can establish taxable value of the business, if structured properly
- Can maintain stability of business operations
- Can improve creditworthiness of the business
- Can maintain tax status of your S corporation, partnership, or professional corporation (if relevant)
- The trustee handles the paperwork and headaches
- Can simplify purchases under buy-sell agreement when more than three or four owners
- The transaction can't be considered a dividend, which would be subject to higher tax rates
- Transactions not subject to attribution rules, which can complicate family corporation transactions
- Restrictions in the agreement can affect personal estate planning and could limit access to outside credit
Variations from State to State
- Community property laws could have impact in cases of divorce
How Is It Implemented?
- Requires advance planning and determination of goals for business interest
- Requires legal and tax assistance
- Requires coordination with estate planning
- Requires payments to trustee
- Requires ongoing, periodic reviews once agreement established
This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.
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