Is Your Buy-Sell Agreement Still Doing Its Job?
A Buy-Sell Agreement Is Not a “Set It and Forget It” Document
Most business owners view their buy-sell agreement as a document they signed years ago, placed in a file cabinet, and hope they'll never need. Unfortunately, that mindset can create significant risk.
A buy-sell agreement isn't a one-time legal exercise—it’s a business continuity tool. Like any strategic plan, it should evolve as the business, its owners, and the legal environment change.
Yet many agreements remain untouched for years, even decades.
During that time, ownership changes, company values increase, tax laws evolve, financing options improve, and court decisions reshape how agreements are interpreted. The result is that an agreement which was well-designed when it was signed may no longer accomplish what the owners intended.
A Lot Has Changed
One recent example is the U.S. Supreme Court's 2024 decision in Connelly v. United States. The ruling highlighted how corporate-owned life insurance used to fund certain stock redemption agreements may increase the value of a deceased owner's taxable estate under certain circumstances.
Whether the decision directly affects your company depends on the structure of your agreement and your ownership arrangement. But the larger lesson extends well beyond one court case.
It serves as an important reminder that buy-sell agreements should not remain static. They should be reviewed periodically to determine whether they still accomplish the objectives they were originally designed to achieve.
The Questions Every Owner Should Be Asking
Rather than asking, "Do we have a buy-sell agreement?" the better question is:
"Would our agreement still work the way we expect if one of the owners died tomorrow?"
That conversation often uncovers issues such as:
Has the value of the company changed significantly?
Is the valuation method still appropriate?
Does the funding remain adequate?
Have family circumstances changed?
Are all current shareholders covered?
Would the agreement still be fair to both the business and the owner's family?
Does it reflect current tax law and legal developments?
These questions rarely have simple answers, but they are far easier to address before a triggering event than afterward.
Business Continuity Is About More Than Documents
The agreement may define what should happen following death, disability, retirement, or another triggering event.
But successful transitions also require adequate funding, clear governance, leadership continuity, communication among shareholders, and a realistic understanding of how ownership will actually change hands.
I've found that the strongest continuity plans are those that integrate all of these elements rather than treating the agreement as a stand-alone legal document.
A Good Agreement Should Create Confidence
One of the primary objectives of a buy-sell agreement is to reduce uncertainty during an already difficult time.
Family members should understand how ownership will be transferred. The remaining shareholders should understand their responsibilities. Employees, lenders, and customers should have confidence that the business will continue operating without unnecessary disruption.
If the agreement creates confusion instead of clarity, it may no longer be serving its intended purpose.
A Simple Review Can Prevent Expensive Surprises
Reviewing a buy-sell agreement does not necessarily mean rewriting it. Sometimes only minor updates are needed.
In other cases, changes in ownership structure, company value, or recent legal developments may justify a more comprehensive review.
Either way, the goal is the same: ensuring that the agreement reflects today's business—not the company that existed when the document was originally signed.
Business continuity isn't tested when everyone agrees on the plan. It's tested when the unexpected happens.
The best time to evaluate whether your buy-sell agreement still does its job is long before anyone needs to rely on it.
Questions to Consider
When was your buy-sell agreement last reviewed?
Has your company's value changed materially since it was signed?
Would your current funding be sufficient today?
Has ownership changed or have shareholders' roles evolved?
Would your family and fellow owners clearly understand what happens if you died or became disabled tomorrow?
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