Estate planning solutions can be implemented to address any situation. This is one reason you should discuss all your options with an attorney.
With the above in mind, let’s look at a relatively common scenario that looks complicated at first until you understand how to proceed.
Small Business Partners
The best way to explain this approach is with a simple example. Let’s say that you started a business with a partner a number of years ago, and have been quite successful. You own the commercial property in a prime location, and the business is a great income producer.
How do you plan your estate when you are in this position, and how would you step aside if you wanted to retire or move on for some other reason?
These are very good questions. The answer would be a buy-sell agreement called a cross purchase plan.
You and your partner would compute the value of your respective shares in the business, then you each would take out life insurance policies on one another that would pay out the value of your respective shares in the business.
When one partner dies, the money received from the insurance company would be used to buy the share owned by the deceased partner from his or her estate. Likewise, the agreement can stipulate that the remaining partner would buy a retiring partner out at the agreed-upon price.
Another type of buy-sell agreement called an entity purchase or redemption agreement works much the same except that the business entity itself would purchase the life insurance on each of the shareholders.
Since we are on the subject of small business succession and life insurance, we should touch upon another scenario. Instead of a business run by you and a partner who is not a member of your family, what if you own a business and your son comes to work for you.
Over the years, he develops as a businessperson and you consider him fully vested at some point. You want to leave the business to your son after you pass away, but you want to be involved throughout your life.
Your other child is a daughter who chose a different career path. Your business is your most valuable asset and you want to provide for each of your children equally. You could balance the inheritances by making your daughter the beneficiary of a life insurance policy with a payout equal to the value of the business.
Access Our Estate Planning Worksheet
There are a number of different resources you can access on our website free of charge. One of them is our estate planning worksheet. It has been carefully prepared to convey a great deal of information simply and efficiently, so you can learn quite a bit if you take the time to go through it.
To get your copy, visit our worksheet page and follow the simple instructions.
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Written information is great, and we urge you to take full advantage of the material we offer. This being stated, if you would like to take it to another level, we have some great opportunities coming up in the near future.
Our attorneys are conducting a series of webinars, and there is no substitute for this type of direct interaction with a licensed professional. It couldn’t be any more convenient, and there is no charge, so you really should take advantage of this opportunity.