Buy-sell agreements are often used by partners in small businesses who are engaged in succession planning, and they can provide a solution to a rather challenging situation.
If you are a partner in a small business you may find that your share is your most significant financial asset. But you probably don’t want to give this asset in its entirety to just one of your heirs.
So how do you make it liquid so that you can spread it to multiple family members without forcing them to sell it to the highest bidder? Plus, if they were to sell it the remaining partner or partners would be forced to deal with the result of the sale without having any input and this is another thing to consider.
This is where buy-sell agreements come in. With what is called the cross purchase plan the partners come together and decide on the value of the business shares. Every partner takes out an insurance policy on each one of the other partners. The combination of the policies will equal the agreed-upon value of a share in the business.
When one of the partners passes away, the surviving partners will receive the proceeds from the insurance policies. According to the terms of the buy-sell agreement that they all entered into they will then pool this money and use it to purchase the business share that was owned by the deceased partner from his or her estate.
If you are interested in learning more about buy-sell agreements, pick up the phone right now and make an appointment to speak with an Indianapolis estate planning lawyer who has a background in small business succession planning.
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