What to do with a partnership upon death?

Question

Hi!

My husband and I are looking to buy a STR beach house. My parents would like to buy it with us. We have already formed a LLC with a lawyer but we are stuck on what to do if myself and my husband or my parents die and the other party doesn't want to sell the property? If the property has gone up significantly in value is our only option a cash out refi and pay off the other person's trust or sale the property and split the proceeds with the surviving family trust? My parents would like to partner in buying it because a lot of the value will come from the appreciation and not just be silent investors. Any other ideas would be great! Thank you!

Thomas Rutkowski · Answer

You need to have a formal Buy-Sell Agreement. The partners need to each purchase life insurance on the life of the other. In the event that either partner dies, the death benefit of the policy is used to buy out the interest of the other partner. This is very common in business.

The LLC can own the policies. But usually these are agreements between the partners.

I would recommend a permanent life insurance policy with an increasing death benefit so that it keeps pace with the appreciation of the property as best as possible.

Sean Constable · Answer

@Amanda Bodine the LLC could own life insurance on the members and the death benefit could be used.  Parents age/health could make premiums expensive.  There should be an operating agreement which spells out exactly how its done

Amanda Bodine · Answer

Yep we did and she had no ideas besides selling or doing a cash out refi.

Carini Rochester · Answer

Talk to an estate planner and a lawyer. Did you tell the lawyer that helped with the LLC that this was a concern?

What to do with a partnership upon death?

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