This guide focuses on the cross-purchase structure only - owner-to-owner funding, how it differs from entity purchase (stock redemption), and how roles split among the attorney, CPA, valuation professional, and licensed life insurance agent. It is for multi-owner businesses comparing structures within a broader buy-sell agreements conversation. Educational only - not legal, tax, or valuation advice.
Gary Cosby is a licensed life insurance agent, licensed in all 50 U.S. states. His role is the life-insurance funding component for death-triggered buyouts under an attorney-drafted cross-purchase agreement. He does not draft the contract, set tax positions, appraise the company, or design non-death funding.
Key Takeaways
- In a cross-purchase design, surviving owners buy the departing owner's interest; each owner typically owns policies on the other owners for death funding
- The agreement is a legal contract; life insurance is a funding tool for the death path - not the agreement itself
- Cross-purchase differs from stock-redemption (entity purchase), where the business is the buyer and often the policy owner
- A valuation professional supports price; the CPA addresses tax and basis; the attorney drafts
- Gary Cosby's lane is death-triggered life-insurance funding only - coordinated with the owner's attorney, CPA, and valuation professional
- Disability, retirement, and voluntary exits need separate analysis - not one life policy for every event
- Implementation belongs in a coordinated buy-sell plan, not a signed binder alone
What Is a Cross-Purchase Buy-Sell Agreement?
In a cross-purchase agreement, each co-owner personally purchases, owns, and is named beneficiary on life insurance covering other co-owners when life insurance is used for death-triggered funding. If Partner A and Partner B own a company together, Partner A may own a policy on Partner B and Partner B may own a policy on Partner A, consistent with the attorney-drafted agreement and professional tax review. When an insured owner dies while applicable coverage is in force, policy proceeds may provide liquidity toward the purchase required by the agreement. Death-benefit payment remains subject to the policy's terms, applicable claim requirements, and the issuing carrier's claims-paying ability.
The commercial goal is continuity: surviving owners keep control among active participants, heirs receive a defined purchase path instead of an open-ended ownership stake, and the buyout is not improvised under cash pressure.
Cross-purchase is one structure among several. For a structure overview, start with buy-sell agreements for business. For implementation steps, see the buy-sell plan guide and buy-sell planning funding notes.
How Cross-Purchase Compares to Other Structures
| Structure | Typical buyer of the interest | Typical policy owner (when life insurance funds death) |
|---|---|---|
| Cross purchase | Surviving co-owners | Each co-owner on other owners |
| Entity purchase (stock redemption) | The business entity | The business |
| Wait-and-see / hybrid | Often elected after the event (business and/or owners) | Depends on the election path counsel drafts |
| One-way / unilateral | A designated buyer | As the one-way design specifies |
A buy-sell arrangement is a legal contract combined with a funding design. The agreement can be signed before policies are in force; until funding matches the death obligation, the promise may be operationally thin. Life insurance funds a death-triggered purchase path - it is not a substitute for counsel's drafting.
Why Owners Choose Cross-Purchase
Owners often prefer cross-purchase when they want individual ownership of policies and a purchase path that runs owner-to-owner rather than through the entity:
- Control stays with remaining owners. Active owners acquire the interest rather than leaving heirs as unexpected partners.
- Policy ownership sits with individuals. Death-benefit cash is typically received by the owner-beneficiaries under the policy design, subject to how advisors structure the transaction.
- Basis and tax outcomes are fact-specific. Personal purchase can affect a survivor's tax basis differently than an entity redemption. Those outcomes belong with a CPA.
Cross-purchase is often considered at formation, when a new partner joins, or when owners refresh continuity documents as part of business succession and exit planning or business exit planning. Advisors recommend funded agreements because an unfunded contract leaves cash risk on the table when a partner dies.
How Owner-to-Owner Funding Works
Counsel drafts the cross-purchase agreement; a valuation professional supports price; owners align death-triggered life insurance ownership, beneficiaries, and amounts; premiums are paid; when a covered death occurs, proceeds support the contractual purchase.
Step 1 - Attorney drafts the terms. The agreement defines parties, triggers, purchase language, payment timing, transfer restrictions, and how value will be determined. Gary Cosby does not draft this document.
Step 2 - Valuation professional supports the price framework. Coverage conversations should follow a usable valuation method owned by a valuation professional, not an insurance quote. The CPA handles tax reporting and related effects.
Step 3 - Align death-triggered life insurance. Each purchasing owner typically owns coverage on the other owners, with beneficiaries matching the purchase path. Misaligned ownership is a frequent failure even when premiums are current. Amounts should track the agreement's valuation framework.
Gary Cosby helps owners explore that death-triggered life-insurance funding component while coordinating with the CPA and attorney. He does not choose legal structure, set appraisals, or treat one life policy as funding for every non-death trigger.
Step 4 - Maintain and review. Owners pay premiums on the policies they own. Reviews matter after ownership, valuation, insurability, or agreement changes - see buy-sell planning.
Step 5 - Death trigger and purchase close. The surviving owner-beneficiary receives policy proceeds and completes the purchase under the buy-sell terms. Closing mechanics stay with counsel.
Cross-Purchase vs Stock Redemption
| Topic | Cross-purchase | Stock redemption / entity purchase |
|---|---|---|
| Buyer | Surviving owners | The business |
| Typical life policy owner | Individual owners on each other | The company |
| Administration | More owner-level policies as owner count rises | Often fewer company-owned policies |
| Tax / basis themes | Personal purchase can affect survivors' basis differently | Entity-level redemption has its own tax and estate interactions |
| Case-law spotlight | Less directly about individual-owned cross-purchase mechanics | Connelly v. United States raised estate-valuation issues for some company-owned redemption designs |
For redemption-specific detail, including Connelly notes, read stock-redemption buy-sell agreements. Neither structure is always better - owner count, health mix, policy ownership preference, entity type, and counsel's goals all matter.
Key Factors That Shape a Cross-Purchase Design
- Number of owners. Each additional owner multiplies owner-to-owner policy relationships. As the roster grows, counsel may shift toward entity purchase, trusteed designs, or hybrids.
- Age and health differences. Premiums to insure older or higher-risk partners can feel uneven. Those economics belong in an open conversation with the agent and CPA.
- Valuation upkeep. Face amounts that tracked value years ago may not track value today. Refresh coverage when the business changes materially.
- Insurability. An owner who cannot obtain coverage may need alternative death funding (installments, reserves, or structure changes counsel designs).
- Trigger scope. Life insurance addresses death-triggered cash need. Disability, retirement, and voluntary exits need separate funding analysis.
Partner-level themes also appear in life insurance for a business partner and business life insurance - still with death-funding clarity kept separate from non-life products.
Common Misconceptions
The insurance policy is not the buy-sell agreement. The attorney-drafted contract creates rights and obligations. Policies fund a death path when designed to do so.
Premium tax treatment is not automatic. Treatment depends on who owns the policy, how money moves, and rules your CPA applies.
One life policy does not fund every trigger. Map funding by trigger inside a buy-sell plan. Gary Cosby does not design disability coverage in the life-insurance funding role described here.
The life insurance agent does not value the company or draft the deal. A valuation professional supports value. The attorney drafts. The CPA handles tax and basis. Gary Cosby explores death-triggered life-insurance funding aligned to that framework.
When Another Structure May Fit Better
Discuss alternatives with counsel when owner-to-owner administration is impractical, owners prefer company-owned funding, age or health gaps strain premiums, or hybrid flexibility is a legal goal. See stock-redemption and hub buy-sell agreements.
Roles: Who Does What
| Role | Owns | Does not own |
|---|---|---|
| Attorney | Drafts the cross-purchase agreement; defines triggers and purchase mechanics | Policy underwriting; formal appraisals |
| Valuation professional | Business value method and updates under the agreement | Legal drafting; life insurance placement |
| CPA | Tax treatment, basis questions, reporting | Appraising the firm; drafting the buy-sell |
| Licensed life insurance agent (e.g., Gary Cosby) | Death-triggered life-insurance design, ownership/beneficiary alignment, placement support | Full plan build; disability products; legal or tax advice; setting company value |
Gary Cosby is a licensed life insurance agent, licensed in all 50 U.S. states. He works alongside the owner's CPA and attorney. Related context: business life insurance and business succession and exit planning.
Putting Cross-Purchase Funding in Motion
- Confirm objectives (control, estate liquidity, continuity among operators).
- Have counsel draft or refresh a cross-purchase agreement (or confirm versus redemption or hybrid).
- Engage a valuation professional so price language is usable.
- Bring the CPA in on tax and basis implications of the owner-to-owner path.
- Stress-test the death-triggered life-insurance funding component with a licensed agent such as Gary Cosby.
- Document handoffs inside a living buy-sell plan.
If you already have a cross-purchase agreement - or are drafting one - review whether death funding still matches ownership and value. Discuss that funding path with Gary Cosby while your attorney and CPA remain on documents and tax.
Frequently Asked Questions
What is a cross-purchase buy-sell agreement?
An attorney-drafted contract where surviving owners purchase a departing owner's interest on defined terms. When life insurance is used, each owner typically owns coverage on other owners so death benefits support that owner-to-owner purchase.
How is cross-purchase different from stock redemption?
In cross-purchase, owners buy the interest and usually own the life policies on each other. In stock redemption, the business buys the interest and often owns the policies. See stock-redemption buy-sell agreements.
Does life insurance fund every trigger?
No. Life insurance is commonly considered for death-triggered obligations. Disability, retirement, and voluntary exits need separate funding designs.
Who sets the buyout price?
A valuation professional supports the value framework. Gary Cosby does not appraise the company.
What does Gary Cosby handle?
The death-triggered life-insurance funding component only. Gary Cosby is a licensed life insurance agent, licensed in all 50 U.S. states. He does not draft agreements, determine tax or basis, value the business, or design disability coverage.
Where should owners start with an unfunded agreement?
Return to counsel on structure and valuation, involve the CPA on tax, then align death-triggered funding via the buy-sell plan frame and buy-sell planning notes. Life insurance for a business partner and business life insurance topics often overlap, but policy purpose, owner, and beneficiary must still match the cross-purchase path counsel drafted.
