Our client was a family real estate business held as a partnership. The family members were all married and did not want the spouses of each partner to take over if one of the partners died.
We created an LLC (Limited Liability Company) to protect the personal assets of each member from creditors and drafted a buy sell agreement which provided that upon the death of a partner the partner’s spouse could not own any part of the business, instead receiving a designated sum of money. To pay the spouse the partners purchased life insurance on each partner’s life. The value of the real estate holdings totaled approximately 30 million dollars at the time the agreement was drafted. The cost of the life insurance was prohibitive so we financed the life insurance. This allowed the business to continue to operate free of the premium costs of the life insurance. The interest rate on the loan for the premium payments has been 2.9 and the life insurance has earned in excess of 10% per year (to date). Within 12 years the partners will use the cash value inside the life insurance to pay-off the loan they received for the premium payments. A Win-Win for this family.