A recent Indiana court case reinforces the need to “close the loop” on ownership of life insurance policies funding a buy-sell arrangement when the need for such coverage ends.

Introduction

Many buy-sell agreements use life insurance policies to fund buy-out obligations created by the death of a business owner. Most of these policies are owned by either the business or its owners. Occasionally, they are owned by a trust, an LLC, or a partnership. Each of these ownership alternatives may be appropriate when properly aligned with the overall buy-sell plan design.

A strong majority of buy-sell agreements reviewed by our Advanced Solutions Team, however, fail to address disposition of life insurance policies acquired for purposes of the buy-sell agreement when the buy-sell insurance need ends. A recent Indiana state court case, Hilliard v. Jacobs, 916 N.E. 2d 689, points out the importance of providing for disposition of buy-sell life insurance policies when they are no longer needed to fund a buy-sell arrangement.