Buy-sell planning: Funding a buy-sell agreement with term insurance can become prohibitively expensive in later years.

Solution: The businessowners should consider replacing the term policies with permanent life insurance — either whole life, universal life or a variable universal life policy.

A buy-sell agreement should account for lifetime buy-outs in the event of permanent, long-term disability and retirement, not just death. Cash values from permanent life insurance policies may be used to fund lifetime buy-outs.

Solution: The principals' attorney should be asked to revise the existing buy-sell agreement to include disability and retirement buy-outs. What's more, the principals should consider purchasing individual disability income protection to fully or partially fund the disability portion of the agreement. The cash accumulations in the permanent life insurance used in the at-death buy-out can create a sinking fund that the principals can use to implement retirement buy-outs for each shareholder.

Business valuations should be updated periodically. In this case, the principals' buy-sell agreement is based on the value of the business four years ago. It is unlikely that this figure represents the value of the company today.

Solution: The company's accountant should be asked to revalue the business so that the buy-out amounts used in the buy-sell agreement, as well as the amount of insurance purchased to fund the agreement, more accurately reflect the value of the owners' interest.