When you have a lot of your financial resources invested in an asset that is not liquid you are presented with an estate planning challenge. People who are partners in small businesses are generally going to be in this situation. If you were to pass away and leave your share in the business to your heirs what exactly would they do with it?
The first thing that comes to mind would be that they could sell it, but then your remaining partners would have no control over who would be joining them. This is not going to be acceptable to most people.
One thing that you could do if you are in this situation would be to enter into a buy-sell agreement with your partner or partners. A very common type of buy-sell agreement is known as the “cross purchase plan.”
Executing this plan involves the purchase of life insurance. The partners in the business first get together to determine the value of each share. They then purchase life insurance on one another with the proceeds adding up to the value of a share.
Should one of the partners pass away, the survivors will collect the insurance policy proceeds. These funds are then used to buy the share in the business that was owned by the deceased partner from his or her estate at a price that was agreed upon by all when the agreement was put into place.
Buy-sell agreements can provide a rather straightforward solution for small business partners. To explore them in depth, simply take a moment to get in touch with a Fairfield County estate planning attorney to set up an informative consultation.