CWS Business Succession Planning Flashcards
6 cards from real CWS practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 CWS Business Succession Planning flashcards as text
Which type of buy-sell agreement requires surviving business owners to purchase a deceased partner's interest?
Answer: Cross-purchase agreement
A cross-purchase agreement obligates the surviving owners to personally buy the deceased owner's business interest, funded typically through life insurance.
What is the primary advantage of an entity purchase (stock redemption) buy-sell agreement over a cross-purchase agreement in a business with many owners?
Answer: Simplicity — the business holds fewer insurance policies than individual owners would
An entity purchase agreement requires only one life insurance policy per owner, whereas a cross-purchase requires each owner to hold policies on every other owner.
A family limited partnership (FLP) is commonly used in business succession planning primarily for which purpose?
Answer: Transferring business interests to family members at a discounted valuation for gift and estate tax savings
FLPs allow business owners to transfer limited partnership interests at valuation discounts (lack of control and marketability), reducing gift and estate tax liability.
What does the term 'key person insurance' refer to in the context of business succession planning?
Answer: Life insurance on a business owner paid for by the business to offset financial loss from that person's death
Key person insurance is a life or disability policy owned and paid for by the business on a critical individual, providing funds to offset the financial impact of that person's death or disability.
Under IRC Section 6166, what benefit is provided to estates with a significant closely held business interest?
Answer: The ability to defer and installment-pay estate taxes attributable to the business over up to 14 years
IRC Section 6166 allows estates where the closely held business exceeds 35% of the adjusted gross estate to pay estate taxes in installments over up to 14 years at favorable interest rates.
Which valuation discount is typically applied to a minority ownership interest in a closely held business due to the lack of ability to control operations?
Answer: Minority interest discount
A minority interest discount reduces the value of a non-controlling ownership stake to reflect the inability to direct business decisions or compel distributions.