Entity vs. Cross-purchase Agreement

Question 1

Cross Purchase advantages

Answer 1

Basis adjustment

Business has a step-up in basis

May be very little capital gain for surviving family

Question 2

Cross purchase disadvantages

Answer 2

• Number of policies = n(n-1)
• Inequality in policy cost due to age differences

Question 3

Entity purchase advantages

Answer 3

Fewer policies if n > 2

Question 4

Entity purchase disadvantages

Answer 4

• No basis adjustment if C corp
• Possible dividend treatment by IRS