What is typically required for a business owner to provide funds for a cross-purchase plan?

For a business owner to implement a cross-purchase plan effectively, it is essential for each principal in the business to own a life insurance policy on the lives of all other principals. This arrangement ensures that if one of the owners passes away, the surviving owners can utilize the proceeds from the policy to buy the deceased owner's share of the business. The cross-purchase plan is specifically designed to facilitate the smooth transfer of ownership while providing the necessary cash flow to buy out the deceased owner's interest.

This strategy not only protects the business continuity but also helps to avoid potential conflicts among heirs regarding the ownership of the business. Each principle's ownership of policies on each other ensures that sufficient funds are readily available, reflecting the core advantage of this arrangement. This systematic ownership creates a financially stable mechanism for business succession planning.