Key takeaways
- Section 101(a)(1) of the Internal Revenue Code generally excludes life insurance death proceeds from the recipient's gross income. That exclusion is limited by the transfer-for-value rule in section 101(a)(2) and by the employer-owned contract rules in section 101(j).
- For an employer-owned contract, section 101(j) caps the exclusion at the premiums and other amounts paid. The cap is lifted only when two conditions are both met: a section 101(j)(2) exception applies, and written notice and consent were given before the contract was issued.
- Section 2042 includes life insurance proceeds in a deceased owner's gross estate when they are receivable by the executor. It also includes them when the decedent held any "incidents of ownership" in the policy at death, a term that 26 C.F.R. § 20.2042-1 defines.
- Section 264(a)(1) allows no deduction for premiums on a life insurance policy when the taxpayer is directly or indirectly a beneficiary under the policy.
- A transfer of a policy for valuable consideration can make part of the death benefit taxable under section 101(a)(2). The statute lists narrow exceptions, including transfers to a partner of the insured and to a partnership in which the insured is a partner.
- Life insurance is the funding mechanism. It is not the succession plan, which lives in the buy-sell agreement and the business's governing documents.
- How a given arrangement is structured, owned and taxed depends on facts about the business, its owners and the contracts.
Published October 6, 2026 · Updated October 8, 2026
Short Answer: What Role Life Insurance Plays in Business Succession
When a co-owner of a closely held business dies, life insurance can supply the cash to buy that owner's interest. A policy on the owner's life pays a lump sum to the surviving owners or to the business, and that money funds the purchase that a buy-sell or succession agreement calls for. With the policy in force, the business may not need to sell assets or borrow to pay for it.
This page is written for owners, partners and shareholders of closely held companies who are weighing how a life insurance succession plan would be funded. Succession planning itself, meaning the agreements, the entity documents and the tax design, is legal and tax work for counsel. Business Life Insurance explains the narrower funding role that insurance plays inside that plan. The page sets out who typically owns the policy, who pays and who receives the proceeds. It also covers the federal income-tax and estate-tax rules that shape those choices. State insurance rules vary by state and are not covered here.
How Life Insurance Funds an Ownership Transition
The business problem comes first
A closely held business usually has no public market for its shares or membership interests. When an owner dies, the estate or heirs hold an interest that they may not want, may not be able to manage, and cannot easily sell. The surviving owners face the opposite problem. They may want to keep control, but they need a large amount of cash at a moment they did not choose. Without a plan, the result can be a forced sale of business assets, new debt, or co-ownership with people who never meant to be in the business.
A succession plan addresses that problem in law. Most often it uses a buy-sell agreement, a contract among the owners, and sometimes the entity, that says what happens to an owner's interest when certain events occur, at what price, and who must buy it. The agreement creates the obligation. It does not create the money to perform it.
Where the policy fits
Life insurance is one way to put money behind the death-triggered part of that obligation. The usual sequence runs as follows:
- The owners sign an agreement that obligates the surviving owners, or the business entity, to buy a deceased owner's interest at a price or by a formula the agreement sets.
- Policies are issued on each owner's life. The purchaser under the agreement owns each policy and is named its beneficiary, the person or entity entitled to the death benefit.
- The purchaser pays the premiums while the agreement is in force.
- At an owner's death, the insurer pays the death benefit to the beneficiary.
- The beneficiary uses the proceeds to buy the deceased owner's interest from the estate or heirs, as the agreement requires.
The policy and the plan stay distinct throughout. The agreement decides who buys, what is bought and at what price. The policy decides only whether cash is there when the agreement is triggered by death.
Whether the death benefit is included in the beneficiary's income depends on section 101(a)(1) and its limits. For a broader view of how companies use policies beyond succession, Business Life Insurance covers business life insurance generally on its own hub page.
Who This Strategy Is For
Using life insurance for succession planning is most often discussed where ownership is concentrated among a small number of people and the business's value depends on them. That typically includes:
- Closely held entities of every common form. These include partnerships, limited liability companies (LLCs), S corporations, C corporations and professional practices. The form matters, because the federal rules on policy transfers and employer-owned contracts differ depending on whether a policy is held by an individual owner, a partnership or a corporation.
- Businesses where one death would create a liquidity crisis. The surviving owners, or the entity, could not pay for the deceased owner's interest from operating cash without selling assets.
- Co-owners who have, or are drafting, a buy-sell agreement. Their agreement requires funding at death.
- Sole proprietors with a planned successor. A sole proprietor whose plan transfers the business to a family member or key employee may look at insurance to give the buyer funding, or to give the estate liquidity tied to the business interest. Notice 2009-48 states that "a life insurance contract that is owned by a sole proprietor on his or her own life is not, however, an employer-owned life insurance contract."
The strategy is usually less relevant in three situations. One is a business whose ownership is widely held. Another is a business with ample liquid reserves. The third is a business with no buy-sell or succession agreement, because then there is no defined obligation for insurance to fund.
Professional practices add another layer. State rules on who may own a law, medical, dental or accounting practice, and on what happens to an interest after a death, vary by state and are not addressed here. The federal side for one profession is set out on the page on life insurance for law firms.
When Life Insurance Funding May Fit a Succession Plan
Several facts commonly appear together where insurance is used as the funding source. None of them makes it suitable on its own. They are the circumstances in which the question is usually raised:
- A written obligation exists. The succession or buy-sell agreement obligates the surviving owners or the entity to buy a departing owner's interest, so the amount and timing of the funding need are defined.
- The owners are insurable, and the cost is proportionate. Underwriting, the insurer's assessment of the insured's health and other risk factors, determines whether coverage is offered and on what terms. Those terms vary by insurer.
- Liquid assets fall short. The business could not fund a buyout from operating cash or reserves without harming operations.
- The owners want to avoid liquidation or dilution. They prefer not to sell business assets or bring in outside capital to complete a buyout.
- The trigger is death. Life insurance pays at death, so it addresses the death-funding gap specifically. A buyout triggered by disability or retirement involves different products and arrangements, and those gaps are not the focus of this page.
When Life Insurance Funding May Not Fit
The opposite facts point the other way, and some of them come from the tax rules rather than the business:
- An owner cannot be covered on sustainable terms. The owner may be uninsurable, or coverage may be offered only at a cost the business cannot carry for as long as the agreement may run.
- Reserves already cover the obligation. The business holds enough liquid assets to fund a buyout without insurance proceeds.
- The plan has no death-triggered buyout. For example, the plan may rest entirely on a lifetime sale or a gifting program.
- The tax cost would outweigh the funding benefit. The ownership structure, or the policy's ownership and beneficiary designations, could trigger results that cancel out what the funding provides. Two examples are inclusion of the proceeds in an owner's gross estate under section 2042, and loss of part of the section 101(a)(1) exclusion under the transfer-for-value rule.
Whether any of these applies turns on the specific facts of the business, its owners and the contracts, which is why such conclusions are reached case by case.
Ownership, Premiums and Beneficiary Designations
The premium deduction rule, stated first
Before any discussion of a business paying premiums, one rule frames everything. Section 264(a)(1) of the Internal Revenue Code provides that "No deduction shall be allowed for— (1) Premiums on any life insurance policy, or endowment or annuity contract, if the taxpayer is directly or indirectly a beneficiary under the policy or contract." In a succession arrangement, the payer of the premiums is usually also the beneficiary, because the proceeds are meant to come back to whoever must buy the interest. The site's page on key person premium deductibility applies the same rule to key person coverage.
Cross-purchase ownership
In a cross-purchase structure, each co-owner owns a policy on the life of each other co-owner, pays its premiums and is its beneficiary. At a death, the proceeds go directly to the surviving owners, who then buy the deceased owner's interest themselves. Each owner is personally both a premium payer and a beneficiary. The page on cross-purchase buy-sell agreements walks through this arrangement in detail.
Entity-purchase (redemption) ownership
In an entity-purchase arrangement, also called a redemption, the business entity owns the policy, pays the premiums and is named beneficiary. The proceeds go to the entity, which uses them to buy back, or redeem, the deceased owner's interest from the estate.
Why the owner of the policy matters
Who owns the policy decides whether the federal rules on employer-owned contracts apply. Notice 2009-48, which gives its guidance "in a question and answer format," addresses ownership in these answers:
- A-1. A contract "owned by the owner of an entity engaged in a trade or business (such as for purposes of financing the purchase of an equity interest of another owner)... is not an employer-owned life insurance contract."
- A-3. If a contract otherwise meets the statutory definition, "ownership of the contract by a partnership or sole proprietorship does not prevent the contract from being treated as an employer-owned life insurance contract."
- A-5. For these rules, the term "employee" includes "an officer, director, and highly compensated employee." That list matters because owners of closely held companies often hold one or more of those roles.
In general terms, then, owner-held policies in a cross-purchase sit outside the employer-owned rules under A-1. Entity-held policies on owner-employees may fall inside them.
Ownership and beneficiary designations also drive estate inclusion under section 2042. How these choices work for a particular agreement and set of contracts is a matter for individual review of the contracts and the succession agreement by qualified tax, legal and insurance professionals.
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Tax Treatment of Life Insurance in a Succession Plan
The income-tax exclusion
Section 101(a)(1) provides that, except as otherwise provided in the listed paragraphs and subsections, "gross income does not include amounts received (whether in a single sum or otherwise) under a life insurance contract, if such amounts are paid by reason of the death of the insured." This is the general rule behind the common description of death proceeds as excluded from income. Its exceptions are what matter most in business planning.
Transfer for value
Section 101(a)(2) provides that "In the case of a transfer for a valuable consideration, by assignment or otherwise, of a life insurance contract or any interest therein, the amount excluded from gross income... shall not exceed an amount equal to the sum of the actual value of such consideration and the premiums and other amounts subsequently paid by the transferee." Put plainly, if a policy is sold or otherwise transferred for something of value, the new owner's exclusion is generally limited to what it paid plus later premiums. The rest of the death benefit falls outside the exclusion.
The limit does not apply in two situations the statute lists. The first is where the transferee's basis is determined in whole or in part by reference to the transferor's basis. The second is where the transfer is "to the insured, to a partner of the insured, to a partnership in which the insured is a partner, or to a corporation in which the insured is a shareholder or officer." That list does not include a co-shareholder of the insured. So a transfer of a policy to a fellow shareholder of the insured is not on it, while a transfer to a partner of the insured is.
Section 101(a)(3) provides that the second sentence of paragraph (2), which contains these exceptions, does not apply to a transfer that is a "reportable policy sale." Section 101(a)(3)(B) defines that term as an acquisition of an interest in a life insurance contract by an acquirer with "no substantial family, business, or financial relationship with the insured apart from the acquirer's interest in such life insurance contract." Sales of policies to third parties belong to a separate subject outside this site's scope.
Employer-owned contracts under section 101(j)
Section 101(j)(1) provides that for an employer-owned life insurance contract, the excluded amount "shall not exceed an amount equal to the sum of the premiums and other amounts paid by the policyholder for the contract."
Under section 101(j)(3)(A), a contract is employer-owned when it meets two conditions. It must be "owned by a person engaged in a trade or business" that is directly or indirectly a beneficiary, and it must cover an insured "who is an employee with respect to the trade or business of the applicable policyholder on the date the contract is issued."
The cap does not apply when two separate conditions are both satisfied:
- A section 101(j)(2) exception applies. The exceptions fall into two groups. Some are based on the insured's status: the insured was an employee at any time during the 12-month period before death, or was a director, a highly compensated employee or a highly compensated individual when the contract was issued. Others cover amounts paid to the insured's heirs: the proceeds are paid to a family member, a designated beneficiary other than the policyholder, a trust for them or the insured's estate, or they are "used to purchase an equity (or capital or profits) interest in the applicable policyholder" from such a person. That second exception speaks directly to entity-funded buyouts.
- The notice and consent requirements of section 101(j)(4) were met "before the issuance of the contract." The employee must have been "notified in writing that the applicable policyholder intends to insure the employee's life and the maximum face amount for which the employee could be insured." The employee must have provided "written consent to being insured under the contract and that such coverage may continue after the insured terminates employment." And the employee must have been "informed in writing that an applicable policyholder will be a beneficiary of any proceeds."
Neither condition works alone. Notice and consent without an exception leave the cap in place, and an exception without timely written notice and consent does too.
Notice 2009-48 also addresses written notice and consent, and annual reporting, in the following answers and statements:
- No exception for a sole owner. Under A-7, section 101(j)(4) "provides no exception that would excuse a wholly-owned corporation and its employee-owner from the notice and consent requirements," and "actual knowledge alone" cannot substitute for written notice and consent.
- Limited relief for inadvertent failures. Under A-13, the IRS will not challenge an exception based on an inadvertent failure if certain conditions are met. Those conditions include a good-faith effort and correction "no later than the due date of the tax return for the taxable year of the applicable policyholder in which the employer-owned life insurance contract was issued." The same answer adds that a missing written consent "cannot be corrected after the insured employee has died."
- Annual reporting. The Notice states that every applicable policyholder owning employer-owned contracts "issued after August 17, 2006, must file a return," and that "a taxpayer must file Form 8925."
Notice 2009-48 was issued in 2009, and whether later guidance modified it should be confirmed.
Estate inclusion under section 2042
Section 2042 includes in the gross estate the proceeds "receivable by the executor," and the proceeds receivable by other beneficiaries under policies where "the decedent possessed at his death any of the incidents of ownership, exercisable either alone or in conjunction with any other person."
The regulation, 26 C.F.R. § 20.2042-1(c)(2), explains that the term "is not limited in its meaning to ownership of the policy in the technical legal sense." It "includes the power to change the beneficiary, to surrender or cancel the policy, to assign the policy, to revoke an assignment, to pledge the policy for a loan, or to obtain from the insurer a loan against the surrender value of the policy, etc." A reversionary interest, meaning a possibility that the policy or its proceeds return to the decedent or the estate, counts only if its value "exceeded 5 percent of the value of the policy" immediately before death.
For corporate-owned policies, § 20.2042-1(c)(6) is central. A corporation's incidents of ownership "will not be attributed to the decedent through his stock ownership to the extent the proceeds of the policy are payable to the corporation." But where the decedent is the controlling stockholder and proceeds are paid to someone else, such as the decedent's spouse, the corporation's incidents of ownership are attributed and the proceeds are included. Control for this purpose means owning stock "possessing more than 50 percent of the total combined voting power of the corporation." The regulation also cross-references a separate rule under which proceeds paid to the corporation are considered in valuing the decedent's stock.
The three-year rule
Section 2035(a) reaches transfers made "during the 3-year period ending on the date of the decedent's death" when the property would have been included under section 2042, among other sections, had the decedent kept the transferred interest or power. So giving up incidents of ownership in a policy within three years of death may still result in inclusion. Section 2035(d) excepts "any bona fide sale for an adequate and full consideration in money or money's worth."
Premiums
Section 264(a)(1) applies to every succession structure in which the premium payer is also a beneficiary.
The employer-owned contract rules and Form 8925 reporting, transfer for value, estate inclusion under section 2042, premium deductibility and buy-sell valuation all turn on the actual contracts and agreements, so each needs individual review of the contracts involved by qualified tax, legal and insurance professionals.
What Affects the Amount of Coverage and Its Cost
The value being funded
The funding need is generally tied to the value of the interest the agreement obligates someone to buy. Valuation methods vary, and the buy-sell agreement typically names the approach, whether that is a fixed price, a formula or an appraisal at the triggering event.
Whether the agreed price holds for estate tax
Section 2703(a) provides that, for estate and gift tax valuation, value is determined "without regard to" an option or agreement "to acquire or use the property at a price less than the fair market value," or a restriction on the right to sell. Section 2703(b) lifts that rule only for an agreement that meets all three of its requirements:
- "It is a bona fide business arrangement."
- "It is not a device to transfer such property to members of the decedent's family for less than full and adequate consideration in money or money's worth."
- "Its terms are comparable to similar arrangements entered into by persons in an arms' length transaction."
If an agreed price is disregarded for estate tax, the estate's taxable value and the insured amount can come apart.
The number of owners
In a cross-purchase, each owner insures every other owner, so the number of policies grows quickly as owners are added. An entity purchase needs one policy per owner.
The insured and the contract
The insured's age and health, and the type of policy, drive cost. A term policy covers a stated period. A whole life or universal life policy is designed for longer coverage and may carry cash value, a contract feature that builds within some permanent policies. Premiums, charges and underwriting terms vary from insurer to insurer and are confirmed with the insurers involved.
Keeping coverage aligned
A business's value changes over time. A fixed-price agreement, or coverage set years earlier, can drift away from current value in either direction, so owners commonly revisit both the price and the coverage when value moves materially.
Business Life Insurance states no premium amounts, rates or coverage recommendations. Those figures depend on facts specific to each business and its owners.
Common Structures for Life Insurance-Funded Succession
Cross-purchase
Each co-owner owns, pays for and is beneficiary of a policy on each other owner. At a death, the surviving owner receives the proceeds, generally within the section 101(a)(1) exclusion. Because owner-held policies of this kind are not employer-owned under Notice 2009-48 A-1, the section 101(j) cap generally does not reach them. The transfer-for-value rule still has to be considered if any policy changes hands.
The surviving owner then buys the interest. Under general tax principles, a purchaser's basis in property bought is typically measured by what was paid. Its application to a given purchase is part of the tax review of the transaction.
Entity purchase (redemption)
The entity owns the policies and receives the proceeds, then redeems the deceased owner's interest. Because the entity is the owner and beneficiary, and the insured owners are often officers, directors or highly compensated employees, the section 101(j) analysis applies. That includes the heirs exception for proceeds used to buy an equity interest from the insured's family or estate, and the notice-and-consent requirement.
Federal tax consequences of a redemption for the remaining owners can differ from a cross-purchase. They also differ among C corporations, S corporations and partnerships, so the entity's form is central to the analysis. For a controlling shareholder, the estate attribution rule in § 20.2042-1(c)(6) also matters.
Transfers between structures
Changing structure often means moving policies, for example from the entity to the owners or between owners. That is where the transfer-for-value rule is most often met. The section 101(a)(2)(B) exceptions for transfers to a partner of the insured or to a partnership in which the insured is a partner are relevant in partnership settings. The section 101(a)(2)(B) list names a partner of the insured and a partnership in which the insured is a partner; it does not name LLC members. A transfer to a fellow shareholder of the insured is not on the exception list. No exception is automatic.
Each structure's consequences depend on the business form, the number of owners and the contract terms.
Potential Advantages of Life Insurance as a Succession Funding Tool
Liquidity is the advantage most often cited. The death benefit is paid as a lump sum at the very event that creates the funding need, rather than requiring the business to sell assets or take on debt.
The income-tax treatment is a second feature. The death benefit generally falls within the section 101(a)(1) exclusion, subject to the limits in sections 101(a)(2) and 101(j).
A defined amount is a third. A policy's face amount, the stated death benefit, is set in the contract. That gives the plan a known figure for the death trigger, unlike an accumulated fund whose value moves with markets and with the business. Some contracts include a guaranteed death benefit as a contract feature, subject to the contract's terms, including payment of premiums.
Finally, an agreement that sets a price and is backed by funding may reduce the room for dispute between surviving owners and heirs. Both sides know in advance who buys, at what price and with what money.
These are descriptions of how the rules and contracts generally work. Whether any of them holds for a particular arrangement depends on its facts.
Important Considerations and Risks
Funding a buyout with insurance creates its own obligations, and each one can fail on its own terms.
- Estate inclusion. Incidents of ownership held at death, or attributed through a controlling stock interest, can bring the proceeds into the gross estate under section 2042. That can enlarge the estate at the same time the interest itself is being valued.
- The three-year rule. Releasing incidents of ownership shortly before death may not avoid inclusion, given section 2035.
- Transfer for value. A policy moved for consideration can lose part of its exclusion under section 101(a)(2). The exceptions are narrow and depend on the parties' exact relationships.
- Employer-owned contract compliance. For entity-owned policies on owner-employees, written notice and consent must come before issuance, a section 101(j)(2) exception must also apply, and Form 8925 reporting applies. A missed consent cannot be repaired after the insured's death, per Notice 2009-48 A-13.
- No premium deduction. Section 264(a)(1) applies where the payer is a beneficiary, so premiums are generally paid with after-tax dollars.
- Valuation. A price that fails the section 2703(b) tests may not be respected for estate tax.
- Lapse and underfunding. If premiums stop and a policy lapses before the death, the funding disappears while the obligation remains. Cash-value contracts may carry surrender charges and policy-loan effects. These vary by contract and insurer.
- Change over time. Owners join and leave, values shift, and an agreement left unrevised can leave the wrong person owning the wrong policy.
Alternatives to Life Insurance for Succession Funding
Insurance is one of several ways to pay for a buyout, and many plans combine them.
- Installment purchase. The buyer pays the price over time from business earnings. This avoids premium costs, but the seller's estate bears credit risk and the business carries the payments.
- Sinking fund or reserve. The business sets aside liquid assets toward a future buyout. Its value at the triggering event is uncertain, and it may be reachable by the business's creditors.
- Outside financing. The buyer borrows at the event. This creates debt service and depends on creditworthiness at a time that may be difficult for the business.
- Lifetime gifting and estate planning. An owner transfers interests during life. Those strategies follow estate and gift tax rules and belong to personal estate planning, outside this site's scope.
Each alternative carries its own tax, legal and practical consequences. Choosing among them is part of the succession plan itself, worked out with qualified professionals.
Hypothetical Example: Life Insurance Funding a Two-Owner Buy-Sell
This example is hypothetical. It uses round figures and is an educational illustration only, not a coverage recommendation.
Assumptions
- Two unrelated owners, A and B, each own 50% of an S corporation.
- Their buy-sell agreement values the business at $2,000,000 and requires the survivor to buy a deceased owner's shares.
- They use a cross-purchase. A owns a $1,000,000 policy on B's life, and B owns a $1,000,000 policy on A's life. Each pays the premiums on the policy they own and is its beneficiary.
- No policy has ever been transferred, and the agreement's price is assumed to be respected.
Arithmetic
- Value of A's interest: $2,000,000 × 50% = $1,000,000.
- At A's death, the insurer pays B: $1,000,000.
- Under section 101(a)(1), the proceeds are generally excluded from B's gross income. This assumes no transfer for value applies, and the policy is owner-held rather than employer-owned under Notice 2009-48 A-1.
- B pays A's estate the agreement price: $1,000,000.
- Proceeds remaining after the purchase: $1,000,000 − $1,000,000 = $0.
- B now owns 100% of the shares. Under general tax principles, B's basis in the purchased shares is typically measured by the $1,000,000 paid.
The example leaves out estate tax, state taxes, premium costs, any income-tax treatment of the sale to A's estate, and the agreement's actual terms. Real outcomes depend on the facts of the arrangement and the contracts.
We're Here for You
We're your trusted California business life insurance advisor. Call us 7 days a week, or send us a message, to have a real conversation about what your business needs.
Frequently Asked Questions
What is the role of life insurance in business succession planning?
Life insurance is a funding source for the death-triggered buyout that a succession or buy-sell agreement requires. It pays a lump sum to the surviving owners or the entity, which can then buy the deceased owner's interest without selling assets or borrowing. The agreement, not the policy, defines the obligation.
Are life insurance proceeds received in a business buyout taxable?
Section 101(a)(1) generally excludes death proceeds from the recipient's gross income. That exclusion can be limited by the transfer-for-value rule in section 101(a)(2), and for employer-owned contracts by the section 101(j) cap. The result depends on how the policy is owned and how it was acquired.
What is the transfer-for-value rule and how does it affect a business succession policy?
Under section 101(a)(2), when a policy is transferred for valuable consideration, the exclusion is generally limited to the consideration paid plus later premiums and other amounts. The statute excepts transfers to the insured, to a partner of the insured, to a partnership in which the insured is a partner, or to a corporation in which the insured is a shareholder or officer. It also excepts certain carryover-basis transfers. Moving policies between owners when an agreement is restructured is the common way this rule is triggered.
What is the three-year rule for life insurance and estate taxes?
Section 2035(a) generally includes in the gross estate property that would have been included under section 2042 if the decedent had kept the interest or power transferred in the 3 years before death. A bona fide sale for adequate and full consideration is excepted.
When are life insurance proceeds included in a deceased owner's estate?
Under section 2042, proceeds are included when receivable by the executor, or when the decedent held any incident of ownership at death. Incidents of ownership include the power to change the beneficiary, surrender, assign or pledge the policy, or borrow against it, as 26 C.F.R. § 20.2042-1 describes. For a controlling shareholder, a corporation's incidents of ownership can be attributed when proceeds are not payable to or for the benefit of the corporation.
What is the difference between a cross-purchase and an entity-purchase buy-sell structure?
In a cross-purchase, each owner holds policies on the other owners and buys the deceased owner's interest directly. In an entity purchase, the business holds the policies and redeems the interest. The structures differ in how many policies are needed and whether the section 101(j) employer-owned contract rules apply.
What are the employer-owned life insurance notice and consent requirements under IRC § 101(j)?
Before the contract is issued, section 101(j)(4) requires written notice to the employee of the intent to insure and the maximum face amount. It requires the employee's written consent to the coverage, including that it may continue after employment ends. And it requires written notice that the policyholder will be a beneficiary. Lifting the section 101(j)(1) cap takes both these requirements and a section 101(j)(2) exception, and Notice 2009-48 states that Form 8925 must be filed.
Does a buy-sell agreement's price control the estate-tax value of a business interest?
Not automatically. Section 2703(a) determines value without regard to an agreement to acquire property at a price less than fair market value, or a restriction on sale, unless the agreement is a bona fide business arrangement, is not a device to transfer property to members of the decedent's family for less than full and adequate consideration, and has terms comparable to similar arm's-length arrangements.
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Educational information only. Not legal, tax, investment or insurance advice. Product availability and outcomes depend on individual circumstances.