Does the price in our buy-sell agreement automatically establish the shares' estate-tax value?
A buy-sell agreement's price does not automatically control federal estate-tax valuation.
By AE Tax Advisors Team · Updated October 28, 2026
A buy-sell agreement's price does not automatically control federal estate-tax valuation. Section 2703 can disregard restrictions or purchase rights unless the applicable requirements are satisfied, including a bona fide business arrangement and other statutory conditions. A family-approved formula is not itself a valuation safe harbor.
A specific business-owner situation
Owners use an old fixed share price to fund a redemption years later. The agreement may govern their contract while still failing to establish the shares' estate-tax value.
Illustrative example, not a client result.
What to establish before filing
- Review the agreement and update history.
- Test the Section 2703 requirements.
- Compare the formula with defensible current valuation evidence.
Which fact changes the answer?
An arm's-length commercial restriction differs from a device that shifts value among family members. The facts and comparability support affect the analysis.
A mistake to avoid
Do not assume enforceability under state contract law establishes federal valuation acceptance.
Records that support the decision
- Executed agreement and amendments.
- Independent valuation.
- Comparable arrangement support.
The decision to document
Reconcile contract price, insurance funding and estate valuation before treating them as the same number.
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Related questions
- We bought key-person life insurance before obtaining employee consent. Does that affect the tax treatment?
- Our company will redeem a deceased owner's shares using insurance. Is that obligation automatically offset against the insurance value?
Sources and editorial context
- Section 101: life-insurance proceeds and exceptions
- IRS Publication 559: estates and income in respect of a decedent
- Section 2703: buy-sell agreements and valuation
General educational information prepared with AI assistance. No individual professional review is claimed. Apply the relevant tax-year rules to the actual records. Editorial policy · AI disclosure.