Corporation buy-sell agreements
MR. WATSON: Now, let's look at the Corporation. There are two ways to fund a corporate form of buy-sell agreement:
- cross-purchase plan - partners buy policies on each other
- stock redemption plan - business buys the policy
MR. WATSON: The only difference between a stock redemption and an entity plan is, one is with a corporation and the other is with a partnership. With the corporation we call it a Stock redemption. It's the only difference.
MR. WATSON: When a corporation owns the policy, in a buy-sell agreement, we call it a stock redemption plan. When a partnership owns the policy, we call it a what? Entity, for a partnership.
MR. WATSON: Is the corporation a "party" to the agreement with a stock redemption plan? Yes. Because the corporation is buying the policies. Which one of those ways under a corporate ownership, cross-purchase or stock-redemption, which one of these ways is the corporation paying the premiums?
STUDENT: Stock redemption.
MR. WATSON: Correct! Which one of those ways, if any, are the premiums tax-deductible?
STUDENT: Stock redemption? (wrong)
MR. WATSON: No way! Neither of them are tax-deductible because neither of them are (cabbage) C, B, or G. What did the B stand for?
STUDENTS: Business creditors.
MR. WATSON: C?
STUDENTS: Charity.
MR. WATSON: And the G?
STUDENTS: Group.
MR. WATSON: I feel like weeping.
STUDENTS: So do we!
