Estate planning for people who are partners in small businesses often involves the execution of buy-sell agreements.
If you were to just leave your share of the business to your family what would they do with it? It is possible that someone in the family would want to fill your role in the business, but where would that leave everyone else in terms of inheritances?
And of course your partners may not particularly want this individual to join them.
Your family could sell the share to the highest bidder, but once again the remaining partners would be forced to deal with the outcome of the sale whether they liked it or not.
With a buy-sell agreement you get around these difficulties.
When you use the type of buy-sell agreement called the cross purchase plan the partners in the business agree upon the value of a share. They then take out insurance policies on one another equal to the value of a share in the business.
If one of the partners was to pass away the proceeds from the insurance policies would be utilized to purchase the deceased partner’s business share from his or her family.
The share would be liquid at that point so it could be distributed among multiple heirs in accordance with your wishes.
Building a successful business is difficult, but it is very rewarding. You do however have to ask yourself how you will be exiting, and this is something to discuss in detail with a licensed and experienced estate planning lawyer who has a thorough understanding of small business succession strategies.