Your partner's share passes to their estate, and what happens next depends on your buy-sell or operating agreement. If there is a funded agreement, the insurance pays and the buyout follows the agreed price. If there is no agreement, you will be negotiating with your partner's family over price and terms while running the business alone, and lenders may react because a guarantor has died. In the first weeks: secure the business, read the agreements, notify lenders and the insurance carrier, and get a valuation started.
We are licensed insurance brokers, not CPAs or attorneys. Treat the tax and legal points on this page as general education, and confirm them with your own CPA or attorney before acting.
On this page
The first few weeks
Losing a partner is personal before it is financial. The practical steps can wait a few days, but not long:
- Keep the business running. Confirm who can sign checks, approve payroll and access accounts. If your partner was the only signer on anything, the bank will need the death certificate and your company resolutions.
- Find every agreement. The buy-sell or shareholder agreement, the operating agreement or bylaws, loan documents, the lease, and any employment agreements.
- Find the policies. Buy-sell, key person and loan policies on your partner. Note who owns each one and who the beneficiary is.
- Call your attorney and CPA before you sign anything with the estate.
If you have a funded buy-sell
This is the good scenario, and it is why owners set these up:
- The policy owner files a claim with the carrier: a claim form plus a certified death certificate. Claims are often paid within weeks; policies in their first two years (the contestable period) can take longer while the carrier reviews the application.
- The agreement sets the price, or the formula or appraisal process for finding it.
- The buyer (you, or the company) pays the estate, the estate transfers the shares, and the business continues with clean ownership.
If the insurance is less than the price, the agreement usually lets the buyer pay the balance over time with a note. If it is more, the agreement says who keeps the excess.
If there is no agreement (or no money)
Without a buy-sell, your partner's estate or heirs own their share, and you are now co-owners with people who may not know the business:
- Corporations: the shares pass to the heirs, who can vote them.
- LLCs: heirs often receive only the economic rights unless admitted as members; see what happens to an LLC when a member dies.
- General partnerships: state law may trigger dissolution or a buyout right, depending on the partnership agreement.
Expect a negotiation over value. The family wants cash and a fair price; you want terms you can afford while the business absorbs the loss of your partner's work. A neutral appraisal helps. Paying over several years from business cash flow is common, and hard on everyone.
Lenders and guarantees
Many business loans list the death of a guarantor as an event of default, even when payments are current. Call your banker early, explain the plan, and ask what they need. If your partner's life insurance was collaterally assigned to the lender, the lender will be paid first from that policy; see life insurance for a business loan.
Taxes in brief
Life insurance proceeds are generally income-tax-free. In a corporation that owned the policy, the proceeds raise the company's value for your partner's estate under the 2024 Connelly decision. Your partner's heirs usually get a stepped-up basis in the inherited shares, so selling them to you at fair value generally creates little taxable gain for the estate. Your CPA should run the specifics.
Protect your own family next
If you are reading this because it just happened, you have likely realized your own family would face the same situation. The fix is a written buy-sell with life and disability insurance behind it, reviewed every year. Start with cross-purchase vs entity redemption, or use the form below and we will walk through it with you and your attorney.
Frequently asked questions
Do I have to buy my deceased partner's share?
Only if a buy-sell, shareholder, operating or partnership agreement requires it, or state partnership law does in your situation. Otherwise the heirs keep the share and you become co-owners with them.
How long does a life insurance claim take?
Many claims are paid within a few weeks of receiving the claim form and death certificate. If the policy is less than two years old, the carrier can review the application during the contestability period, which can take longer.
Can my partner's family run the business with me?
If they inherit voting shares in a corporation, they may have a say. In an LLC they often receive only economic rights unless admitted. A buy-sell agreement decides this in advance.
Start your life insurance request
Tell us what the coverage is for and who it would cover. For most requests we ask for each person's date of birth and sex so Erik can prepare for the call. We do not ask health or tobacco questions in this initial request. This is a request for help, not an insurance application or a promise of coverage.
Written by Erik Moran
Erik co-owns Moran Insurance Group with Amanda Moran and handles the agency's life insurance cases, from key person and buy-sell coverage to trust-owned policies. He works alongside clients' CPAs and attorneys, who make the tax and legal calls. More about Erik.
Sources
Moran Insurance Group is a licensed insurance agency. Our brokers are not CPAs, attorneys or tax advisors, and nothing on this page is tax, legal or investment advice. Tax figures and rules reflect our understanding as of October 2026 and can change. Coverage is subject to carrier underwriting and state availability. Confirm anything tax or legal with a licensed CPA or attorney before you act on it.