In a Cross Purchase Buy-Sell Agreement, what is required if it is funded with individual life insurance?

In a Cross Purchase Buy-Sell Agreement, the purpose is to ensure that, upon the death of a partner, the remaining partners have the financial means to buy out the deceased partner's interest in the business. When the agreement is funded with individual life insurance, it is essential that each partner owns a policy on the other partners. This arrangement allows for a direct payout to the surviving partners, enabling them to acquire the deceased partner’s share without financial strain.

Each partner owning a policy on the other partners ensures that the funds necessary for the buy-out are readily available when needed. This method maintains the intended structure of the agreement and allows for a seamless transition of ownership upon a partner's passing.

Fundamentally, this setup aligns with the principle that the insurance proceeds are meant to provide a specific benefit to the survivors, directly linking the policies to the partners' business interests. In contrast, other options would not fulfill the basic tenets of a Cross Purchase Buy-Sell Agreement, whether it involves a concentration of ownership that could complicate transactions or diverging funding sources that do not directly relate to the partners involved.