Treasury Stock in Entity Method of Buy-Sell Agreement
Course: Insurance Planning
Lesson 17: Stock Redemption/Entity Plan
Student Question:
Hi-
Interesting study here; I see using this method, the entity buys out the estate, and shares are now held by Zion as “treasury stock.” Given the other two living owners own 2/3 of the business, wouldn’t they technically own the treasury stock? A bit confused as to when the taxes are due and how a company (rather than individuals or investors) owns its own stock. I’m just looking for a bit of clarification on how the stock is treated once the entity owns it after the buy/sell is executed.
Thanks
Robert
Instructor Response:
Hi Robert,
Great question. A corporation is allowed to “buy back” its own shares; Zion, Inc. (Zion) shares owned by Zion are referred to as “treasury stock.” The “bought back” shares can be retained as treasury stock, retired, or distributed pro-rata to the surviving shareholders. Whether the stock is retained, retired, or distributed, each surviving shareholder in the Zion case study will own 50% of the issued and outstanding shares.
The decedent’s estate must generally include the value of the shares owned by the decedent in the gross estate. Whether or not an estate tax will be paid depends upon the value of other assets included in the estate, deductions available, and the basic exclusion amount available.
How fully does this address your question?
Bruce
