What happens when an unfunded buy-sell agreement has been triggered for 20% of a $2 million small business?
The actual cash needed out of pocket can be 50% greater than the payment after taxes of profits. Over 5 years to fund the cost of buying just 20% of the business would require over $687,000 in profit at a tax rate of 35%. If profit margins are only 5%, this would require new sales of more than $13,700,000. Life and disability insurance can fund this liability at a reasonable cost.
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