The best laid plans, right? “You know, we really ought to get a will done.” “You know, we really ought to figure out what happens to our two young children if we die in a car accident.” “You know partner, if you died tomorrow I don’t know how I could ever pay your family for your half of the business.”
Too many plans never get followed through on and it leaves family assets in probate court and business assets tied up in lawsuits while families try to get their value out of a business.
I remember serving as a town councilor probably 20 years or more ago and hearing the term “unfunded mandate” for the first time and thinking what a bizarre notion it was. The federal government is going to tell our town that we have to do something that is going to cost a mint and not provide any money to do it. That’s not so bizarre today when everything is unfunded by real money, but my point goes from that flashback to business insurance. What happens when your partner in a business wakes up dead tomorrow?
Well, if you’ve done everything right you and your business partner have set up a legal buy/sell agreement that dictates that the living partner buys out the deceased partner’s family upon his death. Sounds like a great thing, right? But where’s the money going to come from? If the business is worth $2 million are you going to just cut a check for half of that and take it to your partner’s widow? Well, you could if you had remembered to fund the agreement with life insurance. If you didn’t you have just dealt yourself an unfunded mandate. You’ve created a legal agreement to buy out your partner’s family and now you have to do it.
Bottom line. Half a plan is really no plan at all. An unfunded life insurance trust isn’t going to protect your estate from taxes and an unfunded buy/sell agreement isn’t going to keep your business going if your partner dies.