The Cross-Option Agreement

Agreement for joint business owners in conjunction with life insurance policies

This is an agreement that can be put in place by the joint owners of a business in conjunction with life insurance policies that are taken out for each business partner.  The policies will reflect the value of the business relating to each partner as agreed by all parties and re-valued as specified in the agreement (e.g. after submission of year end accounts.)

There is an “option” involved for both parties to the agreement.  If the surviving business partners want to purchase the deceased partner’s holding in the business (his or her “shares”) then the beneficiaries of the deceased partner’s estate must sell.  Conversely if the beneficiaries want to sell the shares, the business partners must buy.

It is important to note that this is a non-binding agreement which means that when the estate is assessed for Inheritance Tax (IHT), the shares may still eligible for Business Property Relief, i.e. free from IHT.

Drawn up in conjunction with Wills

We recommend that the agreement is drawn up in conjunction with Business Wills for all the business partners and you so that trusts can be incorporated to utilise all tax allowances that are available and to fully maximise your IHT savings.

This means that:

• The business can afford to buy the shares back from the beneficiaries of the deceased partner’s estate;
• The business can retain the shares without loss of control;
• The deceased’s family get paid the true market value of the shares;
• There is no ‘binding agreement’ in place so no wastage of potential relief from IHT.

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