Buy-Sell Cross-Purchase vs Redemption 2027 Calculator

Cross-Purchase vs Redemption Structure

Cross-Purchase: each owner buys life insurance on the OTHER. Death triggers buy-out using policy proceeds. Basis step-up at death = recipient gets stepped-up basis when selling. Redemption: company owns policies on all owners. Death = company redeems shares from estate using proceeds. NO basis step-up for surviving owners.

The Step-Up Advantage

Cross-purchase delivers full basis step-up to surviving owners. Example: 2-owner LLC, owner dies, partner buys deceased's interest with insurance proceeds. Surviving owner's basis = original + purchase price (step-up). Redemption: surviving owner's basis stays at original (no step-up) — they pay capital gains tax on full appreciation when they eventually sell.

C-Corp AMT Trap

Pre-2018 C-Corp redemption: death proceeds increased AMT income. TCJA largely eliminated C-Corp AMT but careful planning still needed. S-Corp: redemption is cleaner. LLC/partnership: cross-purchase strongly preferred for basis step-up.

Premium Funding & Number of Policies

2 owners = 2 policies (each owns the other's). 3 owners = 6 policies. 4 owners = 12 policies. Cross-purchase grows complex fast. Trust workaround (Insurance Trust): single trust owns all policies — simpler admin but requires careful drafting.

Source: ABA Section of Real Property, IRS Section 318/302 stock redemption. Last updated: May 2026.