Corporate Cross Purchase Agreement Page 7
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31indebtedness. If the right to purchase said policy(s) is not exercised, the policyowner shall
have the privilege of holding or disposing of said policy(s) at his/her discretion.
On payment of the price by the purchaser, the seller shall execute such assignments or
releases as may reasonably be required to effect the complete transfer of title of the policy
to the purchaser.
[For many years it has been customary for insured purchase agreements to grant the
insured the right to purchase the policies on his/her life pertaining to the agreement.
However, Rev. Rul. 79-46, 1979 - I.R.B. 17, held that an employee's contractual right to
buy a life insurance policy on his/her life, owned by the business, is an incident of
ownership under I.R.C. Section 2042. This ruling did not involve a policy pertaining to a
buy-sell agreement. In Estate of John Smith v. Comm'r., 73 T.C. 307 (1979), acq. in
result, 1981-1C.B. 2, the Tax Court held that the insured's contingent purchase option was
not an incident of ownership. Also, in Let. Rul. 8049002, the IRS ruled that where a
stockholder had the right to purchase the policies on his life if he ceased being a
stockholder, such contingent purchase option was not an incident of ownership.
Accordingly, Rev. Rul. 79-64 may be of doubtful validity. Even assuming the ruling's
validity, it should not result in inclusion of both the insurance proceeds and the decedent's
interest in the business in the gross estate. Estate of John T. Mitchell, 37 B.T.A. 1 (1938).
acq. 1938-1C.B.20; Estate of Ray E. Tompkins, 13T.C. 1954 (1949), acq. 1950-1C.B.5.]
Alternate Article Providing For Disposition Of Disability Buy-Out
Insurance
10.
DISPOSITION OF DISABILITY INSURANCE. Upon the death of a Stockholder, the
surviving Stockholder(s) shall have the right to exercise within ____ days after the transfer
of the stock, the exchange privilege provision or the transfer of ownership provision
according to the terms contained in all disability buy-out contracts of insurance on his/her
life appertaining to the Agreement and which were owned by the decedent.
In the event a Stockholder sells all of his/her stock during said Stockholder's lifetime, the
other Stockholder(s) shall have the right to exercise within _____ days after the transfer of
the stock, the exchange privilege provision or the transfer of ownership provision
according to the terms contained in all disability buy-out contracts of insurance on his/her
life appertaining to this Agreement and which were owned by the selling Stockholder. The
selling Stockholder shall have the right to exercise within _____ days after the transfer of
the stock, the exchange privilege provision or the transfer of ownership provision
according to the terms contain in all disability buy-out contracts of insurance on his/her life
appertaining to this Agreement and which were owned by the other stockholders.
At such time as the disability buy-out provisions of Article 3. go into effect, the non-
disabled Stockholder(s) shall have the option, exercisable within _____ days, to exercise
the exchange privilege provision or the transfer of ownership provision according to the
DI1087
0108
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