If you are in a partnership and one of your fellow partners was to die unexpectedly or suddenly be unable to work through an illness, would the business suffer financially?
The answer is that in most cases, this would result in a period of acute financial instability. This situation can be easily averted if you take some advice.
Nicholls Stevens have been advising partnerships for many years
The first action which is needed is to find the partnership agreement and, in fact, if there is not one in place, to go and see the Solicitor and get one in place
Next, you need to read the agreement to see what is to happen in the event that a partner dies or is unable to work through ill health. Usually the partnership agreement will say that the partner’s capital account will need to be paid out to him/his family over a period.
This of course, presents both parties with a problem, the family need some instant money and the partners not only have to fund the pay out to their sick or deceased partner but also maintain the work of the partnership and engage a new partner
The solution is normally to put in place some life assurance which will pay out a capital sum on the partner’s death so that the family can be swiftly paid out, without any Inheritance Tax Liability if this is done correctly.
In the event of a partner’s long term sickness an income protection policy will mean that he or she has an income to live on and is therefore able to cope with capital repayments being spread over a longer period. For a case study on this very situation we would direct you to ‘Director’s Disability Insurance’.