Buy-Sell Agreements Can Provide A Solution

December 27, 2011

Partners in small businesses that are engaged in the process of estate planning can be faced with a tricky situation. If you were such a partner you would probably want the value of your business to be spread among different family members after your passing. So, this business interest would have to be sold to provide the necessary liquidity.
But, how will your partners feel about this? They would be forced to deal with whoever it is that purchased your share in the business whether they feel comfortable working with this individual or entity or not.
The way that situations such as these are often addressed is through the creation of buy-sell agreements. These agreements utilize the purchase of life insurance to allow the remaining partners to buy the share of the deceased partner from his or her family.
With the cross purchase plan each of the co-owners in the business takes out a life insurance policy on every other. After one of them dies the combined insurance policy proceeds are used to buy the share that was owned by the deceased individual from his or her family.
Another type of buy-sell agreement involves the business itself taking out life insurance policies on all the co-owners equal to the value of each respective share with these proceeds being used to buy the share of the deceased partner from his or her heirs. This approach is called the entity plan.
Buy-sell agreements can provide a relatively simple solution in some cases. To learn more about small business succession planning, simply take a moment to arrange for a consultation with an experienced and licensed Reno estate planning attorney.

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