A wait-and-see buy-sell does not decide in advance whether the company or the surviving owners will buy a deceased owner's share. Instead it sets an order: usually the company gets the first option, the surviving owners get the second, and the company must buy whatever is left. Owners typically hold the life insurance personally (as in a cross-purchase), so they can either buy shares themselves or lend or contribute the cash to the company, choosing the best tax result when the time comes.
We are licensed insurance brokers, not CPAs or attorneys. Treat the tax and legal points on this page as general education, and confirm them with your own CPA or attorney before acting.
On this page
Why wait and see
When owners sign a buy-sell, they are guessing about a future they cannot see: what the tax law will be, what the business will be worth, whether the survivors will want to sell soon, what kind of entity they will be. A cross-purchase locks in one answer and an entity redemption locks in another. A wait-and-see agreement keeps both open until a death or other triggering event, when the facts are known.
The idea became more popular after the 2024 Connelly decision, since owners who want to avoid putting insurance proceeds in the company now want a path that lets them buy personally, while keeping the option for the company to buy if that is better.
How the order of options works
- First option: the company. The business may buy some or all of the deceased owner's interest within a set period.
- Second option: the surviving owners. They may buy any part the company did not, usually in proportion to their ownership.
- Mandatory buy: the company. Whatever remains, the company must buy, so the family is guaranteed a buyer.
The price comes from the agreement's valuation method, the same as in any buy-sell. Deadlines should be short enough that the deceased owner's family is not left waiting.
Funding it with life insurance
The usual design has the owners own policies on each other, just like a cross-purchase. At a death, the surviving owners collect the proceeds and then decide:
- Buy the shares themselves, getting a basis step-up and keeping the proceeds out of the company's value; or
- Lend or contribute the cash to the company so it can redeem the shares, if a redemption works better for their situation.
Because the policies are owned by the individuals, the company is not the beneficiary, which avoids the Connelly issue at the death. With more than three owners, the policy count can be handled through an insurance LLC that sits behind the agreement.
Three equal owners of a $3 million S corporation each own $500,000 policies on the other two. When one dies, the two survivors each collect $500,000. Their CPA advises that buying the shares personally gives them the better basis for a planned sale in three years, so the company waives its first option and the survivors buy the shares directly. Had they planned to keep the business for decades, they might have contributed the cash and let the company redeem.
Partnerships and LLCs
Wait-and-see agreements work for LLCs taxed as partnerships too. Partnership tax rules give extra choices when the entity buys an interest (for example, how payments to the deceased partner's estate are characterized, and basis adjustments if the partnership makes the right election). That flexibility is a reason to keep the option open. Your CPA should explain the options for your entity.
Drafting tips
- Match the option deadlines to how fast insurance claims are paid (often weeks once the death certificate and claim forms are filed).
- Spell out what happens if an owner lets a policy lapse or cannot get coverage.
- Include disability, retirement and departure triggers, not just death. See disability buyout insurance.
- Review the valuation every year, and size coverage with the buy-sell calculator.
Frequently asked questions
Who owns the life insurance in a wait-and-see buy-sell?
Usually the owners, on each other, as in a cross-purchase. That lets them buy shares personally or lend or contribute the money to the company if a redemption turns out to be better.
Is a wait-and-see agreement more expensive to set up?
Drafting is a bit more involved than a standard cross-purchase or redemption, but the insurance is the same. The extra flexibility is usually worth the modest added legal cost.
Does the family risk not being paid?
Not if the agreement is drafted well. The final step requires the company to buy any shares the company and owners did not, so the family always has a buyer at the agreed price.
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Written by Erik Moran
Erik co-owns Moran Insurance Group with Amanda Moran and handles the agency's life insurance cases, from key person and buy-sell coverage to trust-owned policies. He works alongside clients' CPAs and attorneys, who make the tax and legal calls. More about Erik.
Sources
Moran Insurance Group is a licensed insurance agency. Our brokers are not CPAs, attorneys or tax advisors, and nothing on this page is tax, legal or investment advice. Tax figures and rules reflect our understanding as of October 2026 and can change. Coverage is subject to carrier underwriting and state availability. Confirm anything tax or legal with a licensed CPA or attorney before you act on it.