Background

Last year, Amir and Ebi reached out to WiseInvest™ to discuss their rapidly expanding business. Initially, their concerns revolved around tax savings and investing corporate surplus in the most tax-efficient way. However, during the initial meeting, our advisor noticed a significant gap in their planning: they had no Buy/Sell Agreement in place.

Identifying the Need

While reviewing their financial and operational structures, our advisor asked them about their strategy if one partner were to exit the business suddenly—due to disability, death, or another unforeseen event. Amir and Ebi were unfamiliar with the concept and importance of a Buy/Sell Agreement. We explained that without a solid plan, the business (valued in the millions) could be thrown into chaos, leaving the remaining partner and the family of the departing partner in a precarious situation.

The Recommendation

After several detailed sessions, our advisor recommended a framework for the Buy/Sell Agreement that would cover different scenarios, including death and disability. By the end of the month, Amir and Ebi formalized their agreement, and a month later, they purchased insurance to fund it. This policy was designed to cover the cost of buying out a partner’s share based on a method that accounted for the company’s fast-growing value.

Unforeseen Tragedy

Unfortunately, one year after finalizing the agreement, Ebi was diagnosed with liver cancer. He passed away two months later, leaving his family grieving and uncertain about the future. However, because the Buy/Sell Agreement and the insurance funding were already in place:

• Fair Valuation
  Ebi’s share was valued at $2.8 million in accordance with the agreed-upon valuation method.
• Insurance Payout
  A $3.5 million insurance policy covered the cost of purchasing Ebi’s shares and provided additional funds to the company. This extra cash helped cope with the sudden financial and operational burdens arising from Ebi’s absence.
• Smooth Transition
  Amir was able to assume full ownership without resorting to loans or dipping into company cash flow. Ebi’s family received timely compensation, honoring Ebi’s legacy and reducing uncertainty.

Outcome

By proactively establishing a Buy/Sell Agreement with adequate partnership insurance, this fast-growing business protected itself from disruption. Ebi’s family was financially secure, and Amir continued operations without risking the business’s stability. Their story is a stark reminder that preparing for worst-case scenarios is crucial to safeguarding your company and loved ones—even while you focus on growth, tax savings, and smart investment strategies.

*Note: For privacy reasons, the names and nature of our clients’ businesses have been changed.