R. Shawn McBride recently spoke about death and insurance on a series about updating your buy/sell, part three.
Everyone, R. Shawn McBride with you here live, talking again about dealing with partnerships. We’ve been working the last several days, talking about partnerships, partnership agreements, whether they are LLCs, corporations, limited partnerships, or whatever form your partnership agreement might be in. There’s some reality of dealing with partnerships, and we’ve started to dive a little bit into some of the details about what may happen. If you missed the beginning of the series, go back to my Facebook page, R. Shawn McBride public, and find it there, or look for the McBride for Business YouTube channel. Either way, you can catch up on the series, but today we’re talking about death, and yesterday we talked some about what happens if a partner dies. Today we want to talk about dealing financially with the death of a partner. What happens when a partner dies, and how do we financially deal with this.
One of the issues we have is, where does the money come from? Usually, partnerships or businesses have their money tied up in the operations, right? Inventory, or more realistically these days, a lot of times intangible assets. A brand, computers, databases, lists of customers, ongoing things that they’ve developed, intellectual property. So you have a lot of money invested, but it’s all illiquid, there’s no fund of money available, that if one of your partners is no longer there that you can just write him a check. The money’s tied up in the business. So what do we do? Well, this is where life insurance comes in, right?
So if we can get it, if it’s commercially available, we’re looking for insurance, we want to get somebody to underwrite this risk, write an insurance policy on the life of each of the partners, and then if one of the partners should die, we then fund it through, somehow we buy that partner out.
It can go one of two ways, typically, either the money flows into the partnership, and then the partnership does the buyout, or it flows directly to their estate and there’s a buyout there. In either case, a buyout of the partnership interest happens, the partnership reconsolidates with the existing owners, and the business continues to move forward. We’ve very clearly dealt with it.
Now, in real life, sometimes there’s an issue with getting insurance policies because they may not be commercially available, people may be uninsurable, they may have risks involved, medical procedures coming up, or medical histories that prevent them from getting insured. There we can possibly use a time payout. There’s a lot of different ways to blend this. The key is not to hide the ball, right? We don’t want to say, oh, you know, somebody might die, it’s going to be messy, let’s just not deal with it. We want to deal with it upfront, we want to understand that we need to put plans in place in case a partner dies. So that’s really what we want to do, and it could be insurance, could be timed buyouts, could be other financial arrangements, but we want something there, and there are ways to deal with this financially. You can just get in and figure out what’s right for you and your situation.
So how can we help you? We’d love to hear about what situations you’re facing, what issues you’ve had in your partnership agreements. Check out our blog. We have a lot of great content there. We’d love to come in and work with you and your partners or your organization to help get things more advanced. Can either do this as a workshop for a group of business owners as a keynote, or we can get into the weeds, so stay tuned, part four is coming up tomorrow.
We’ll talk more about realities of what happens in partnership agreements, so look for that, and we look forward to joining you tomorrow. All right, talk to you soon, and if you missed the early parts of this series, go check out the R. Shawn McBride public page, or go to our YouTube channel and start getting yourself caught up. All right, talk to you soon. I’m here for you guys.
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This posting is intended to be a tool to familiarize readers with some of the issues discussed herein. This is not meant to be a comprehensive discussion and additional details should be discussed with your attorneys, accountants, consultants, bankers and other business planners who can provide advice for your circumstances. Each case is unique. Past results do not guarantee future outcomes. This article should not be treated as legal advice to any person or entity. Freeimages.com/photographer Lourdes Mora.
About the Author
R. Shawn McBride is the Chief Innovation Officer at McBride For Business, LLC. His signature keynote, The 3 Laws of Empowerment, gives audiences an entertaining look at how they can prepare, plan and protect themselves. You can reach R. Shawn McBride at firstname.lastname@example.org or (214) 418-0258.
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