What is required for a Cross Purchase Buy-Sell Agreement funded with individual life insurance among partners?

In a Cross Purchase Buy-Sell Agreement funded with individual life insurance, each partner must own a policy on the lives of the other partners. This arrangement ensures that, in the event of a partner's death, the remaining partners have the financial means to buy out the deceased partner's interest in the business. The policies provide the necessary liquidity to fund the purchase, allowing for a smooth transition and stabilization of the business.

This structure is particularly beneficial because it allows each partner to control their policy and the death benefit, while also providing a direct line of funds that corresponds to the ownership stake each partner has in the business. Each partner by owning insurance on the lives of others directly aligns their financial interests and responsibilities, making it crucial for maintaining the stability and continued operation of the partnership in case of a partner’s passing.

Having the partners own policies on each other's lives creates a clear and defined framework for the Buy-Sell Agreement, which serves both the financial and operational needs of the partnership.