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Wallace and Associates is considering implementing a buy/sell agreement where each partner purchases a life insurance...

Wallace and Associates is considering implementing a buy/sell agreement where each partner purchases a life insurance policy on each of the other partners. Which one of the following statements is correct given this information?

a. The partners are entering into an entity redemption agreement.

b. Upon the death of an owner, the life insurance proceeds will be used to buy out the decedent’s share of the partnership. Those life insurance proceeds are taxable as ordinary income.

c. The amount of insurance per policy will equal the value of the partnership.

d. The partners are entering into a cross-purchase agreement.

Solutions

Expert Solution

Answer: The correct answer is option "d" that is, "the partners are entering into a cross-purchase agreement".

Explanation:

A partnership buy/sell agreement in which each partner purchases a life insurance policy on each of the other partners is known as cross purchase plan or a cross-purchase agreement.
The partners involved in the cross purchase plan agree individually to buy the interest of partner who has expired.
Each partner owns the life insurance policy on the life of each of the other partners.
Here, each partner is the payer and beneficiary of the life insurance policy on each of the other partners.

jeff jeffy answered 2 years ago
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