Behind many multi-generation family businesses — the breweries, the construction empires, the media dynasties — sits a document outsiders never see: the buy-sell agreement. It's the contract that decided, years before anyone died, exactly what would happen to an owner's share when the unthinkable happened. Companies that survive a founder's death usually had one; those that end up in litigation between the surviving partner and the founder's family often did not.
If you co-own a business in New York — with a partner, a sibling, or your own family members — this is the single document most likely to determine whether the company outlives you. Here's how the wealthy structure it, and how the same mechanics work at your scale.
Key takeaways
- A buy-sell agreement fixes in advance who buys a deceased or departing owner's interest, at what price, and with what money — converting a crisis into a transaction.
- The two classic structures are cross-purchase (owners buy from each other) and redemption (the company buys back the shares), and the choice has real tax and basis consequences.
- Life insurance is the standard funding engine, but after the Supreme Court's Connelly decision, how company-owned insurance affects the company's value for estate tax purposes demands fresh attention.
- A buy-sell that isn't coordinated with each owner's will, trust, and estate tax picture can undo years of careful planning at the worst moment.
Cross-purchase vs. redemption: who does the buying
Every buy-sell answers one structural question first: when an owner dies, who buys the interest? In a cross-purchase agreement, the surviving owners personally buy the deceased owner's share — often funded by policies each owner holds on the others' lives. The survivors get something valuable in return: a purchase price basis in the shares they buy, which can mean less capital gain when they eventually sell. The drawback is logistics; with many owners, the web of policies multiplies quickly, which is why larger groups sometimes use a special-purpose LLC or trusteed arrangement to hold the insurance centrally.
In a redemption agreement, the company itself buys back the deceased owner's interest, usually with a policy the company owns on each owner. It's administratively simpler — one policy per owner, owned in one place — but the survivors receive no basis increase, and company-owned insurance raises the valuation issue discussed below. Many well-advised businesses use a hybrid "wait and see" agreement that preserves flexibility to choose the better route when the time comes.
Insurance funding and the Connelly-era lesson
An unfunded buy-sell is a promise without money behind it. Life insurance solves that: the death benefit arrives exactly when the purchase obligation does, so the family is cashed out without the company draining reserves or borrowing in a crisis. But the funding design now carries a lesson from the Supreme Court's Connelly decision: when a corporation owns life insurance to redeem a deceased owner's shares, the insurance proceeds can increase the company's value for estate tax purposes — without the redemption obligation offsetting it — potentially inflating the taxable estate of the very owner the plan was meant to protect. The takeaway isn't that redemption agreements are dead; it's that the structure, the policy ownership, and each owner's estate tax exposure have to be modeled together, and older agreements drafted before this ruling deserve a professional re-read. This is especially true in New York, where the state estate tax cliff can make even a modest valuation bump disproportionately expensive — a question that sits squarely inside tax planning.
Valuation clauses and coordination with your estate plan
Price is where unplanned successions turn ugly, so a good agreement locks in a method: a formula tied to earnings or revenue, a periodically updated agreed value, or a neutral appraisal process triggered at death. Whichever method you choose, it should be realistic and kept current — a certificate of value signed eight years ago protects no one. The agreement should also cover the quieter triggers a good agreement also covers: disability, retirement, divorce (so an ex-spouse doesn't become your partner), bankruptcy, and a falling-out, each with its own pricing and payment terms.
Finally, the buy-sell must dovetail with each owner's personal plan. Your will or trust should anticipate that your family receives sale proceeds, not shares; your trustee or executor needs authority to close the sale; and if your interest is held in a revocable trust to avoid Surrogate's Court delays, the agreement must permit that ownership. Getting the contract, the insurance, and the estate plan to tell the same story is the essence of business succession planning — and it's very hard to fix after a death has already happened.
How Schwartsman Law Group can help
A buy-sell agreement is bespoke by nature — the right structure depends on your co-owners, your company's tax status, your insurance, and your family's estate picture. Schwartsman Law Group, led by founding attorney Marianna Schwartsman, drafts and updates buy-sell agreements and coordinates them with owners' trusts and estate plans, from offices in Brooklyn, Manhattan, and Manhasset, serving clients in English and Russian. Call (212) 518-3868, email ms@schwartsmanlaw.com, or request a free consultation to put the agreement in place — or have your existing one reviewed — while every owner is still here to sign it.