What Should be Done When a Corporation Changes From a Stock Redemption to a Cross Purchase Agreement?

In the case of corporation changes to a cross purchase from a stock redemption (perhaps to avoid or minimize the impact of any corporate AMT), planners should consider leaving currently owned corporate insurance on a reduced paid-up basis (the cash values in the policies pay future premiums but the death benefit is reduced) and using that corporate coverage as key employee insurance. Parties to the agreement can then purchase new coverage without fear of violating the transfer for value rule.

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Reproduced with permission.  Copyright The National Underwriter Co. Division of ALM

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