The process of estate planning can involve some tricky situations, and life insurance can sometimes be the solution.
One such situation would be the matter of small business succession planning for business partners. Let’s say that you have one partner in the business.
If this partner was to pass away he or she is logically going to leave his or her share in the business to his or her family. For the purposes of our example no one in the family is capable of or interested in taking over the role of the deceased partner in the business.
What is the family going to do with this business share? They would logically sell it, but then you would be stuck with the new owner whether you like it or not.
If you were to die first your partner would be in the same situation.
A viable solution would be to create a buy-sell agreement. Both you and your partner take out life insurance policies on one another, the value of which would equal the agreed-upon value of a business share.
When one of the partners passes away the insurance money is used to buy his or her share from the heirs to the estate.
Life insurance can also be used to balance inheritances. If you wanted to leave a very valuable piece of property like a home for instance to one of your two children you could take out a life insurance policy equal to the value of the home and make your other child the beneficiary.