EE—Reverse Section 303

A reverse stock redemption under Section 303 offers a very attractive way of paying estate settlement costs by having an entity other than the corporation purchase insurance to fund the redemption.

DURING LIFETIME.If the stock interest will bemore than35 percent of the stockholder’s adjusted gross estate, then his stock will qualify under Section 303 for a partial redemption at his death. Theamountof stock that can be purchased is limited to the sum of all federal and state death taxes, funeral, and administrative expenses. However, the purchase must be made from whoever has the obligation to pay these costs, usually the family or estate.

One way to implement a reverse Section 303 is for the stockholder to establish a life insurance trust. A life insurance contract insuring the stockholder is then obtained by the trust. The trust pays the premiums and is both owner and beneficiary of the contract.