Accounting
Buy-sell agreements and their tax and insurance considerations for surviving partners
There are two significant reasons for a client to have an updated and funded buy-sell agreement. One is to allow the surviving partner to maintain sole control of the business if one of the owners or partners were to die prematurely or become disabled.
The other is to provide an immediately available sum of tax-free dollars to pay the deceased partner’s family for their share of the business or practice. A written agreement would establish an updated value of the business, how much money the deceased’s partner’s family would receive, over what period of time and most importantly, where the funds needed to pay the deceased partner’s family would come from.
Having discussed the value, terms, mechanics and funding beforehand would not only provide for an orderly transition of the business but also avoid unnecessary disputes settled by costly litigation.
Doing so would also prevent key people, employees, vendors and customers from leaving the business, thereby maintaining the full value of the business or practice for the surviving partner and their family. Lastly, a properly drafted, funded and annually updated valuation of the business could peg the value of a business for estate tax purposes.
There are basically three types of buy-sell agreements: cross-purchase, stock redemption, and wait and see. For the purposes of this article, we’ll focus on the two most popular: the cross-purchase and stock redemption. The wait and see has components of both types of agreements but doesn’t require a decision until death occurs. The cross-purchase agreement is an agreement made directly between the partners of a business or practice. Each partner is the owner, beneficiary and premium payor of the other partner’s life Insurance policy. As always, there are benefits and detriments to any planning options and the cross-purchase is no exception.
In a cross-purchase agreement, the distinct tax benefits to the surviving partner are that at their subsequent death, their family would receive a step up in basis to the current value of the business. For example, if a business is initially valued at $1million and then over 20 years later it’s worth $3 million, there would be no capital gains tax at the subsequent death of the surviving partner on the $2 million gain as the surviving partner in a cross-purchase agreement would receive a stepped-up basis at death to the $3 million.
One of the detriments of such an agreement is that the value of the personal shares of the business are subject to the claims of the creditors. In addition, if there are three partners, there could be as many as six life insurance policies required, and 12 policies if there were four partners involved. That aside, there would be disparities as to the cost of a particular amount of life Insurance coverage for a partner in their 60s in excellent health, as opposed to a partner in their 70s in not such good health. Equalizing the individual costs for a business or practice with four or more partners could be an administrative burden.
The second type of a buy-sell agreement is called a stock redemption. In this type of an agreement the mechanics work differently. Instead of the partners owning the policies on each other’s lives, paying for one another’s premiums and being each other’s beneficiary, the business is the owner, premium payor and beneficiary of each partner’s policy. This type of arrangement makes the administration easier and equalizes the different policy charges as well as reduces the number of policies required to provide the insurance coverage for several partners. It also shields the value of the shares of the business from personal creditors.
However, the detriment to that type of an agreement is severe in that at the death of a partner there is no step up in basis in the value of the business for the surviving partner’s family at their passing. Using the prior example, if the initial value of the business or practice was $1 million and then over 20 years later, upon the death of the first partner, the value of the business was determined to be $3 million, the estate of the surviving owner would be required to pay a capital gains tax of $2 million with a basis of $1million rather than the $3 million it would have been with a cross-purchase agreement.
The Supreme Court ruling on June 6 in the case of
Buy-sell agreements frequently utilize life insurance to provide the funding mechanism for payment of the purchase price upon death, disability, retirement or a specifically mentioned triggering mechanisms outlined in the buy-sell agreement such as divorce, unresolvable differences or bankruptcy. This source of funding is designed to have the surviving partner receive the tax-free death benefit in the most tax efficient manner, which would then be used to purchase the shares of the deceased partner from their family.
Since we’ll be focusing on the use of four different types of life insurance, a brief explanation of each type of life insurance policy that could be used is in order. Term life insurance can be purchased with a five- to 40-year term of coverage where the death benefit, the premium and the duration of coverage are all guaranteed. Term insurance provides a death benefit only and is the most popular and least expensive type of coverage simply because the coverage contractually ceases to exist at the ages of 80 to 82. As a result, only 2% of term insurance coverage is ever paid out as a death benefit. However, for business owners who intend to retire or sell their business or practice before the age of 80, and only want to be protected in the event of death, term insurance is a good choice. Since a disability is more likely to occur than a premature death, it’s a good idea to address a disability by funding it with a disability buyout policy.
If one wants to guarantee their coverage beyond age 82, they can utilize a guaranteed universal life insurance policy, which for a higher annual premium can guarantee the death benefit, cost and duration of coverage up to age 120. It should be noted that the longer one wants their coverage guaranteed to last, the higher the cost.
For those business owners and partners of a practice that want to utilize life insurance for its living benefits as well as its death benefit, they can use a whole life policy with a guaranteed premium and tax- free death benefit, based on a fixed return. Another option would be a variable life policy. This type of policy’s return is based on the returns of the stock market and is not guaranteed but may provide a higher or lower return. In either case, in addition to having provided an income tax-free death benefit during the partner’s working years, the policy could have accumulated a significant build-up of tax deferred internal cash value. Then at retirement (beyond age 59 and a half) when the death benefit is no longer needed, the partners could begin withdrawing the policy’s cash value to supplement their retirement on a 100% tax-free basis, utilizing a strategy of loans and withdrawals that never have to be paid back as long as the policy survives the insured. This and other split-dollar arrangements (such as premium sharing) are an extremely popular strategy for those businesses with an adequate cash flow. This is known as a private pension. or supplemental owners retirement plan.
Similar steps can also be taken to ensure a key employee remains in the business during any such turbulent times by providing them with a deferred compensation plan. Such a plan can merely provide a death benefit only using simple term insurance, or arrangements can be made to use a whole life or variable life insurance policy that in addition to providing a death benefit, also accumulates cash value on a tax-deferred basis. This accumulation can, upon the key person’s retirement, be used to supplement their income with tax-free distributions, but only if they fulfill their end of the bargain, i.e., remaining at their place of business for a specified number of years set at the owner’s discretion. This strategy is commonly called a supplemental executive retirement plan.
Jody Padar, an author and speaker known as “The Radical CPA,” and Katie Tolin, a growth strategist for CPAs, together launched a training and technology platform called XcelLabs.
XcelLabs provides solutions to help accountants use artificial technology fluently and strategically. The Pennsylvania Institute of CPAs and CPA Crossings joined with Padar and Tolin as strategic partners and investors.
“To reinvent the profession, we must start by training the professional who can then transform their firms,” Padar said in a statement. “By equipping people with data and insights that help them see things differently, they can provide better advice to their clients and firm.”
The platform includes XcelLabs Academy, a series of educational online courses on the basics of AI, being a better advisor, leadership and practice management; Navi, a proprietary tool that uses AI to help accountants turn unstructured data like emails, phone calls and meetings into insights; and training and consulting services. These offerings are currently in beta testing.
“Accountants know they need to be more advisory, but not everyone can figure out how to do it,” Tolin said in a statement. “Couple that with the fact that AI will be doing a lot of the lower-level work accountants do today, and we need to create that next level advisor now. By showing accountants how to unlock patterns in their actions and turn client conversations into emotionally intelligent advice, we can create the accounting professional of the future.”
“AI is transforming how CPAs work, and XcelLabs is focused on helping the profession evolve with it,” PICPA CEO Jennifer Cryder said in a statement. “At PICPA, we’re proud to support a mission that aligns so closely with ours: empowering firms to use AI not just for efficiency, but to drive growth, value and long-term relevance.”
The accountant the world urgently needs has evolved far beyond the traditional role we recognized just a few years ago.
The transformation of the accounting profession is not merely an anticipated change; it is a pressing reality that is currently shaping business decisions, academic programs and the expected contributions of professionals. Yet, in many areas, accounting education stubbornly clings to outdated, overly technical models that fail to connect with the actual demands of the market. We must confront a critical question: If we continue to train accountants solely to file tax reports, are we truly equipping them for the challenges of today’s world?
This shift in mindset extends beyond individual countries or educational systems; it is a global movement. The recent announcement of the
The CIMA/CGMA proposal for 2026 is not just a curriculum update; it is a powerful manifesto. This new program positions analytical thinking, strategic business partnering and technology application at the core of accounting education. It unequivocally highlights sustainability, aligning with IFRS S1 and S2, and expands the accountant’s responsibilities beyond mere numbers to encompass conscious leadership, environmental impact and corporate governance.
The current changes in the accounting profession underscore an urgent shift in expectations from both educators and employers. Today, companies of all sizes and industries demand accountants who can do far more than interpret balance sheets. They expect professionals who grasp the deeper context behind the numbers, identify inconsistencies, anticipate potential issues before they escalate into losses, and act decisively as a bridge between data and decision making.
To meet these expectations, a radical mindset shift is essential. There are firms still operating on autopilot, mindlessly repeating tasks with minimal critical analysis. Likewise, many academic programs continue to treat accounting as purely a technical discipline, disregarding the vital elements of reflection, strategy and behavioral insight. This outdated approach creates a significant mismatch. While the world forges ahead, parts of the accounting profession remain stuck in the past.
The consequences of this shift are already becoming evident. The demand for compliance, transparency and sustainability now applies not only to large corporations but also to small and mid-sized businesses. Many of these organizations rely on professionals ill-equipped to drive the necessary changes, putting both business performance and the reputation of the profession at risk.
The positive news is that accountants who are ready to thrive in this new era do not necessarily need additional degrees. What they truly need is a commitment to awareness, a dedication to continuous learning, and the courage to step beyond their comfort zones. The future of accounting is here, and it is firmly rooted in analytical, strategic and human-oriented perspectives. The 2026 curriculum is a clear indication of the changes underway. Those who fail to think critically and holistically will be left behind.
In contrast, accountants who see the big picture, understand the ripple effects of their decisions, and actively contribute to the financial and ethical health of organizations will undeniably remain indispensable, anywhere in the world.
Congressional Republicans are siding with Donald Trump in the messy divorce between the president and Elon Musk, an optimistic sign for eventual passage of a tax cut bill at the root of the two billionaires’ public feud.
Lawmakers are largely taking their cues from Trump and sticking by the $3 trillion bill at the center of the White House’s economic agenda. Musk, the biggest political donor of the 2024 cycle, has threatened to help primary anyone who votes for the legislation, but lawmakers are betting that staying in the president’s good graces is the safer path to political survival.
“The tax bill is not in jeopardy. We are going to deliver on that,” House Speaker Mike Johnson told reporters on Friday.
“I’ll tell you what — do not doubt, don’t second guess and do not challenge the President of the United States Donald Trump,” he added. “He is the leader of the party. He’s the most consequential political figure of our time.”
A fight between Trump and Musk exploded into public view this week. The sparring started with the tech titan calling the president’s tax bill a “disgusting abomination,” but quickly escalated to more personal attacks and Trump threatening to cancel all federal contracts and subsidies to Musk’s companies, such as Tesla Inc. and SpaceX which have benefitted from government ties.
Republicans on Capitol Hill, who had — until recently — publicly embraced Musk, said they weren’t swayed by the billionaire’s criticism that the bill cost too much. Lawmakers have refuted official estimates of the package, saying that the tax cuts for households, small businesses and politically important groups — including hospitality and hourly workers — will generate enough economic growth to offset the price tag.
“I don’t tell my friend Elon, I don’t argue with him about how to build rockets, and I wish he wouldn’t argue with me about how to craft legislation and pass it,” Johnson told CNBC earlier Friday.
House Budget Committee Chair Jodey Arrington told reporters that House lawmakers are focused on working with the Senate as it revises the bill to make sure the legislation has the political support in both chambers to make it to Trump’s desk for his signature.
“We move past the drama and we get the substance of what is needed to make the modest improvements that can be made,” he said.
House fiscal hawks said that they hadn’t changed their prior positions on the legislation based on Musk’s statements. They also said they agree with GOP leaders that there will be other chances to make further spending cuts outside the tax bill.
Representative Tom McClintock, a fiscal conservative, said “the bill will pass because it has to pass,” adding that both Musk and Trump needed to calm down. “They both need to take a nap,” he said.
Even some of the House bill’s most vociferous critics appeared resigned to its passage. Kentucky Representative Thomas Massie, who voted against the House version, predicted that despite Musk’s objections, the Senate will make only small changes.
“The speaker is right about one thing. This barely passed the House. If they muck with it too much in the Senate, it may not pass the House again,” he said.
Trump is pressuring lawmakers to move at breakneck speed to pass the tax-cut bill, demanding they vote on the bill before the July 4 holiday. The president has been quick to blast critics of the bill — including calling Senator Rand Paul
As the legislation worked its way through the House last month, Trump took to social media to criticize holdouts and invited undecided members to the White House to compel them to support the package. It passed by one vote.
Senate Majority Leader John Thune — who is planning to unveil his chamber’s version of the bill as soon as next week — said his timeline is unmoved by Musk.
“We are already pretty far down the trail,” he said.
Forgotten 401(k) fees cost workers thousands in retirement savings
‘What’s the point’ of saving money
XcelLabs launches to help accountants use AI
New 2023 K-1 instructions stir the CAMT pot for partnerships and corporations
The Essential Practice of Bank and Credit Card Statement Reconciliation
Are American progressives making themselves sad?
-
Blog Post7 days agoCommon Bookkeeping Challenges and Solutions for Small Businesses
-
Economics1 week agoWhy the president must not be lexicographer-in-chief
-
Personal Finance1 week agoCrypto in 401(k) plans: Trump administration eases rules
-
Finance1 week agoVail Resorts, GameStop and more
-
Finance1 week agoThis is why Jamie Dimon is so gloomy on the economy
-
Accounting1 week agoDeloitte rolls out AI agent ecosystem
-
Economics1 week agoAmerica has found a new lever to squeeze foreigners for cash
-
Accounting1 week agoIs private equity bringing accounting down or lifting it up?