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Company funds premiums on policies through bonuses

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David owns 75 percent of the stock of Smith Industries, which is operated as an S corporation. Walter owns the remaining 25 percent. - David is the driving force behind the company. It is doubtful the company could survive without David. - Walter is a purely passive investor. Smith Industries has a standard cross-purchase buy-sell agreement that is triggered if one of the shareholders dies. The other shareholder is obligated to buy the stock of the deceased shareholder. - The company is now valued at $12 million. - Walter owns a $9 million policy on David's life, and David owns a $3 million policy on Walter's life. The company funds the premiums on the policies through bonuses to the shareholders. You represent David. What is wrong with this situation? What changes would you recommend? How would you implement those changes?

Reference no: EM13874807

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