If you own a private corporation, how will your shares be dealt with when you die? Will any of your beneficiaries desire to become active in your business when you die? Will the surviving shareholders wish to take on one or more of your beneficiaries who may or may not have sufficient business skills?

If your beneficiaries remain inactive, non-controlling shareholders, the controlling shareholders may prefer to boost their own salaries, rather than sharing profits through dividend payments. Consider selling your interest in the corporation to the surviving shareholders, their holding companies or the corporation itself, by a prearranged written Buy-Sell Agreement.

Without a Buy-Sell Agreement in place before one's death, there is no pre-established fair market price and no assurance of a purchase. Set forth the Buy-Sell Agreement provisions in a larger document, a Shareholder Agreement. The circumstances in which shareholders may be required to sell shares, under the agreement, are the bankruptcy or insolvency of a shareholder, the mental or physical disability of a shareholder, a shareholder ceasing to be an employee of the company, and the death of a shareholder.

Methods of Funding
Money to purchase the shares can come from the cash assets of the corporation or from the shareholders; the money could be borrowed; the money could be saved, year by year or the buy-out could be spaced out over a number of years. The above methods can drain the cash flow and create a delay for payment to the beneficiaries who may need funds to pay income tax on capital gains. A cost-effective alternative would be to pre-fund the payment with life insurance timed to pay for the shares precisely at the time of death. Also, disability insurance can pay for the shares should a disability occur.