There is no one size fits all estate plan, because everyone is in a different situation. It is not always as simple as drawing up a last will splitting up a pie that is going to be easily divisible.
For example, if you are a small business partner, you will naturally have a number of concerns that company employees will not have to address. As a small business partner you must decide what will happen to your share of the business after you pass away.
You may want to spread the value of your share among multiple different people on your inheritance list. How can you go about this while simultaneously protecting the interests of your business partners?
Business Continuation Agreements
Business continuation agreements are typically used to address this type of situation. One of these agreements is called a buy-sell agreement. There are a couple of different types of buy-sell agreements, and one of them is the cross purchase plan.
When you are implementing the cross purchase plan, you and the other partners must sit down to determine the value of a business share.
Once you have agreed upon the value of a share, each of the partners will take out a life insurance policy on every other partner. The combined value of the insurance policies will equal the value of a share of the business.
The insurance policy proceeds will be collected by the surviving partners after the death of one of the co-owners of the business. These proceeds will be utilized to purchase the share in the business that was owned by the deceased partner from his or her estate.
The surviving partners will assume ownership of the business share, and the family of the decedent will have liquidity that can be spread among multiple people.
There is another type of buy-sell agreement that is called the entity purchase or stock redemption plan, and it is very similar to the cross purchase plan. With this plan the partners do not purchase life insurance policies on one another. The business entity itself takes out life insurance policies on all of the respective shareholders.
When one of the co-owners passes away, the same scenario plays itself out. The insurance proceeds are used to buy the share that was owned by the deceased partner.
Business Planning Consultation
This post has provided a brief look at one approach to estate planning for small business partners. There are other factors to consider, and the optimal course of action will vary on a case-by-case basis.
If you would like to discuss your estate plan with a licensed attorney, contact us through this website to request a free consultation.