Building a business of any kind takes years of hard work, and you want your heirs to benefit from your efforts after you’re gone. But when you’re a partner or co-owner of a business, how do you ensure a smooth transition in the event of your death? Not being prepared can lead to lengthy court battles, and to your family having to suffer even more without you.
The business buy-sell agreement is an ideal instrument that, upon your death, will create a fund of money to be used to pay your family or estate the full value of your share of the business. And life insurance is what makes the business buy-sell agreement work.
Just as with any life insurance policy, at the death of the insured, the beneficiaries receive a death benefit. But in the case of the buy-sell agreement, the life insurance policies are either owned by the company, insuring each part owner, or owned by the partners with the other partners as the insured. The money from the policy is then paid to your surviving family members in return for your share of the business.
There are two methods from which to choose in setting up a business buy-sell agreement: the “Entity” purchase and the “Cross” purchase. For entity purchase buy-sell agreements, the business itself buys separate life insurance policies on the lives of each of the co-owners. The business usually pays the annual premiums and is the owner and beneficiary of the policies.
For cross purchase buy-sell agreements, each co-owner buys a life insurance policy on each of the other co-owners. Each co-owner usually pays the annual premiums on the policies they own and are the beneficiaries of the policies. If your company has a large number of co-owners, multiple policies must be purchased by each co-owner.
We have helped thousands of successful business owners with smart financial, tax and various business moves. If this something you want for yourself then please call (877) 972-3262 or complete contact us form now.