I got a call from a long time client this morning letting me know that his business partner of almost 50 years, also a client of mine, had passed away over the weekend.
It wasn’t unexpected. He would have been 85 next month and his health had been going downhill for a while. Quite some time ago we had set up a buy/sell agreement between the two, the goal for each being to be able to have the funds upon a death to buy out the deceased partner’s share of the company from his family.
This is one of those things that is rarely thought about. I doubt seriously that 10% of partnerships take this step and it can be a real quagmire for the 90% that don’t. In most situations the family of a deceased partner in a business has a right of ownership to that part of the business.
They can, in the absence of a way to be cashed out, move in and fill the shoes of the deceased partner. This might work in rare cases, but in most cases this wouldn’t be desirable for the surviving partner. Unless the family member that was willing to take that on was either already part of the business or had some experience and a relationship with the surviving partner, it would likely end up in a mess of unpleasant dimensions.
But back to my clients. Their planning and commitment to the funding through life insurance will make for a seamless business succession. The surviving partner has started the claim process and within just a few weeks he should be able to deliver $1.5 million to his partner’s family and they will convey to him full, uncontested ownership of the company. Exactly the way it should be. No drama. No fuss over how to transfer the business.
Bottom line. Businesses often take on so many ways to protect their hard work from all kinds of disaster and very often overlook themselves as the most important assets. A business insurance portfolio should always consider how to make business succession seamless and fair to all concerned.