What type of plan involves an agreement where a business purchases a deceased owner's interest?

The correct answer is a buy-sell agreement, which is specifically designed to address situations when a business owner passes away. This agreement outlines the terms under which the remaining owners or the business itself will purchase the deceased owner’s share of the business.

This arrangement ensures that the deceased owner’s interest in the business is transferred smoothly and according to predefined conditions, preventing potential disputes among heirs or other family members who might not be interested in remaining involved in the business. It also provides financial security for both the heirs of the deceased owner and the remaining owners, as the agreement often specifies the valuation of the business interest and the terms of payment.

In contrast, an entity plan refers to a broader organizational structure and strategic management approach of a business, rather than the specifics of ownership transfer upon death. A succession plan focuses on the long-term strategy to replace key personnel and ensure business continuity, while a trust agreement is a legal arrangement managing assets on behalf of another party but does not specifically address the ownership transfer related to a deceased owner’s interest in a business.