General partnerships are a common business arrangement, especially among small businesses. There are rules that govern the activities of general partnerships, but many of these rules can be changed by the partnership agreement. Make sure your partnership agreement is in writing so that there is no debate about specifics. You should also consult a lawyer to be certain that your agreement will create the desired outcome upon the death of a general partner.
Unless specified otherwise in the partnership agreement, a general partnership is automatically dissolved when one of the partners dies. The remaining general partners may develop a new partnership and partnership agreement.
A partnership share can be inherited by a family member or other party only if the partnership agreement says it can.
It may be stated in the partnership agreement that, upon the death of a partner, the partnership may buy that partners' share. The purchase price of this share can be stated in the partnership agreement.
Cross Purchase Plans
If you want your partners to be able to buy out your share of the partnership in the event of your death, you may want to consider a cross purchase plan. Under this plan, each partner buys a life insurance policy on the other partners. The partners will then have the necessary funds to buy the deceased partner's share.
This plan is similar to the cross purchase plan. In this plan, the partnership purchases a lie insurance policy on each partner so that remaining partners may purchase the deceased partner's share.