Tim Fuller

President, SRS Inc.

Tim Fuller is President of SRS Inc., a full-service IMO (Independent Marketing Organization) and BGA (Brokerage General Agency) that has connected independent financial professionals with life, annuity, disability income, and long-term care solutions from 60+ carrier partners for more than 50 years. Tim and the SRS team specialize in impaired-risk underwriting, advanced case design, and helping advisors place the cases other IMOs turn away.

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Grantor Trusts: How Clients Can “Have It Both Ways” on Estate and Income Taxes

September 25, 2026December 7, 2021 by Tim Fuller

Advisor and client reviewing an advanced markets estate planning strategy in a private office

“You can’t have your cake and eat it too” is usually good advice. Grantor trusts are the exception: properly structured, they let a client move assets out of their taxable estate while still being treated as the owner for income tax purposes, and that combination works in the family’s favor.

Key takeaways

Assets in a properly drafted grantor trust are outside the grantor’s taxable estate, including all future growth.
The grantor pays the trust’s income tax, which lets trust assets grow untouched and is effectively an additional tax-free gift.
Grantor trusts also offer creditor protection and, through a spouse’s interest, indirect access to trust property.

Every dollar of income tax the grantor pays on the trust’s behalf is, in effect, an extra gift to the heirs — with no gift tax.

The estate tax side

Property in the trust isn’t included in the grantor’s taxable estate, so both the original gift and all appreciation after the transfer escape estate tax. For clients above the $15 million exemption, that growth can be worth far more than the original gift.

The income tax side

For income tax purposes, the trust’s income, gains, and losses flow through to the grantor’s personal return. That has two advantages: the grantor can manage the tax using their own tax position, and trust assets aren’t depleted to pay taxes. Paying the trust’s tax is effectively a gift to the beneficiaries that doesn’t use any annual exclusion or lifetime exemption.

Other benefits

Trust assets are protected from the grantor’s creditors.
A married grantor can keep indirect access to trust property by giving the spouse a lifetime interest.
Grantor trusts are well suited to owning life insurance and to sales of appreciated assets. See how sales to grantor trusts work with life insurance.

The catch: no step-up in basis

The IRS confirmed in 2023 (Revenue Ruling 2023-2) that assets in a grantor trust that aren’t included in the grantor’s estate don’t receive a step-up in basis at death. Heirs inherit the original basis, so highly appreciated assets may carry a built-in capital gain. Some trusts include a power to swap assets back to address this, which should be planned with the client’s attorney.

Frequently asked questions

What is a grantor trust?

A trust in which the creator is treated as the owner for income tax purposes, while the assets can still be outside their taxable estate if properly structured.

Why would a grantor want to pay the trust’s income taxes?

Paying the tax lets trust assets grow untouched and is effectively an extra gift to beneficiaries that isn’t subject to gift tax.

Do grantor trust assets get a step-up in basis at death?

Not if they’re excluded from the grantor’s estate. The IRS confirmed this in Revenue Ruling 2023-2.

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Reviewed by Tim Fuller on 2026-09-25

Tim Fuller

President, SRS Inc.

Tim leads SRS Inc., a full-service IMO (Independent Marketing Organization) and BGA (Brokerage General Agency), connecting independent financial professionals with life, annuity, disability income, and long-term care solutions from 60+ carrier partners.

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Charitable Giving With Life Insurance: Leveraging a Gift to Charity

September 26, 2026December 6, 2021 by Tim Fuller

Happy family of four laughing together on the couch, representing life insurance protection

Gifts to universities, hospitals, faith-based organizations and other nonprofits are a meaningful way for clients to use accumulated wealth. A large direct gift can substantially reduce what passes to family. Funding a life insurance policy owned by the charity lets clients make a larger future gift at a fraction of the current cost.

Key takeaways

Instead of giving a large sum today, the client donates premium dollars and the charity owns and is beneficiary of a policy on the client’s life.
The client’s net worth is reduced only by the premiums, which may be deductible for clients who itemize, subject to limits.
The charity must be willing to own the policy, and premiums must be paid in full and on time to protect the death benefit.

Donating premium dollars rather than a lump sum can turn a modest annual gift into a much larger legacy for a cause the client cares about.

The trade-off with direct gifts

A direct gift reduces the client’s net worth dollar for dollar. For clients who also want to leave a meaningful inheritance, that trade-off can limit how much they are willing to give. Life insurance separates the size of the gift from the size of today’s outlay.

How charity-owned life insurance works

The client donates cash each year equal to the premium.
The charity applies for, owns and is the beneficiary of a policy on the client’s life.
The charity pays the premium with the donated funds.
At death, the charity receives the full death benefit.

Because the charity owns the policy, the client may be able to deduct the premium gifts as charitable contributions.

Design and tax points to confirm

Deductions. Income tax deductions apply only to gifts to qualified charities, require itemizing and may be subject to percentage limits and phase-outs. The client’s tax advisor should confirm the benefit.
Short-pay designs. A limited-pay premium schedule reduces the risk of the gift falling short if the client stops giving.
Consistent funding. Each premium must be paid in full. Smaller donations can reduce the death benefit or cause the policy to lapse.
Charity policies. Some organizations will not own life insurance or have specific requirements, so confirm early.
Insurable interest. State rules on charitable insurable interest vary, and carriers will review them at application.

Balancing charity and family

Many clients want to support a cause and still leave a meaningful inheritance. Combining charity-owned coverage with a family gifting strategy can serve both goals. Contact our team to compare designs for the charitable portion of a plan.

Frequently asked questions

Can a client deduct premiums on a policy owned by a charity?

Generally, cash given to a qualified charity that owns the policy can be deductible if the client itemizes, subject to IRS limits. The client’s tax advisor should confirm the treatment.

What happens if the client stops donating?

The charity may not have the money to pay premiums, and the policy could shrink or lapse. Short-pay designs reduce this risk.

Can the client name the charity as beneficiary of a policy they own instead?

Yes. That keeps flexibility but generally does not provide a current income tax deduction for premiums. The death benefit is still removed from the taxable estate through the estate tax charitable deduction.

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Reviewed by Tim Fuller on 2026-09-26

Tim Fuller

President, SRS Inc.

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Why Referrals Are Your Best Source of New Clients

September 26, 2026December 2, 2021 by Tim Fuller

Advisor presenting a client outreach marketing plan on a whiteboard to a colleague

Everyone agrees referrals are a strong way to find new clients, yet many advisors hesitate to ask. Reframed correctly, asking for a referral is a compliment to your client, and it is one of the most efficient ways to fill your calendar with qualified prospects.

Key takeaways

Asking for referrals acknowledges that your client made a smart decision and invites them to share it.
Referred prospects come with built-in credibility and are easier to reach than cold leads.
The best time to ask is right after you have delivered value, with a specific description of who you help.

For every appointment you earn through hours of cold calling, you should be able to get several referred leads from a single good client meeting.

Why asking feels hard, and why it shouldn’t

Many advisors worry that asking for names will seem pushy. Consider it from the client’s side. You are telling them they made a sound decision and asking whether people they care about might benefit from the same conversation. Most clients are glad to help when the request is framed that way.

Five reasons referrals outperform other leads

You start on favorable terms. A shared connection makes it far more likely a prospect will take your call and book a meeting.
You borrow credibility. Your client valued your work enough to recommend you, which establishes trust before you speak.
Your confidence goes up. Calling a referred prospect is much easier than a cold call.
You spend more time advising. Less time prospecting means more time in front of people who are ready to talk.
Prospects can be qualified in advance. Your client can tell you about the person’s situation so you are prepared for the first call.

A simple script you can adapt

Here is a version for long-term care conversations:

“I’m interested in meeting people much like you, people who are concerned about protecting their retirement savings, not becoming a burden to their children and staying in their own homes. I’d really appreciate the chance to share with your friends and relatives some of what we went over today. Who do you think we could help?”

Adjust the concerns to the product you just placed: income protection for a disability client, family security for a life client and so on.

Making referrals a habit

Ask at the moment of greatest value, such as policy delivery or a completed review.
Describe your ideal client specifically so names come to mind.
Ask for a little background on each person and permission to mention your client’s name.
Follow up with a thank-you, whether or not the referral buys.

Educational material helps too. Sharing facts such as current long-term care costs gives clients something useful to pass along. Contact SRS for client-approved pieces you can use.

Frequently asked questions

When is the best time to ask a client for a referral?

Right after you have delivered clear value, such as at policy delivery, after a claim is paid or at the end of a helpful review meeting.

How many referrals should I ask for?

Rather than a number, ask who comes to mind that shares a specific concern. Describing the need helps clients think of the right people.

What if a client says they can’t think of anyone?

Thank them and let them know the door is open. Offer a short article or handout they can share if someone comes to mind later.

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Reviewed by Tim Fuller on 2026-09-26

Tim Fuller

President, SRS Inc.

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Disability Insurance Riders That Help Cover Clients’ Medical Bills

September 26, 2026December 1, 2021 by Tim Fuller

Advisor supporting a couple as they review living needs benefits paperwork together

Even clients with good health insurance can face medical bills well beyond their deductible after an illness or injury. Some individual disability income policies offer riders that add benefits aimed at those costs, often for a modest additional premium.

Key takeaways

Health insurance deductibles are only part of the cost; copays, out-of-network care and non-covered expenses add up.
Riders on some DI policies add benefits for loss of daily living activities, critical illness diagnoses and accident-related medical costs.
Rider availability, benefit amounts and state approval vary by carrier, so confirm current details before presenting.

The right riders can turn a basic disability policy into a more comprehensive plan for little additional premium.

The medical cost gap most clients overlook

Clients often budget to meet their annual health insurance deductible, but a serious illness or injury can bring copays, coinsurance, travel, equipment and other costs that health coverage does not pay. At the same time, a disability can cut off the income used to pay them. Our article on income protection covers the core need.

Three types of riders to know

One carrier’s income protection policy offers riders like these. Details differ between carriers and states.

Activities of daily living (ADL) or catastrophic benefit rider. Pays an additional monthly benefit on top of the base benefit if the insured cannot perform two or more activities of daily living without stand-by assistance, or is cognitively impaired.
Supplemental health or critical illness rider. Pays a lump sum, in one design equal to six times the monthly benefit, upon a covered stroke, cancer diagnosis or coronary bypass surgery.
Accident medical expense rider. Reimburses accident-related medical expenses up to a per-accident maximum, such as $5,000, with a lifetime maximum of up to ten times that amount. It can pay even when the injury does not result in a disability claim.

How to present the riders

Start with the core recommendation: the right policy type and monthly benefit for the client’s income.
Before the meeting, share educational material explaining how medical expense protection works alongside income protection.
Show the added cost of each rider next to the benefit it provides so the client can decide what is worth including.
Be clear about limitations, including exclusions and states where riders are not approved.

Where these riders fit

These riders are most compelling for clients with high-deductible health plans, limited emergency savings or physically demanding work. For clients whose employer coverage leaves gaps, see our article on the group disability insurance gap. Contact our disability team for current rider availability, state approvals and sample illustrations.

Frequently asked questions

Do DI medical expense riders replace health insurance?

No. They supplement health coverage by helping with out-of-pocket costs and adding cash benefits in certain situations. Clients still need primary medical coverage.

Does the accident medical expense rider require a disability claim?

In the design described here, no. It can reimburse accident-related medical costs even when the injury does not qualify as a disability. Confirm terms with the specific carrier.

Are these riders available in every state?

No. Availability varies by carrier and state, and features change over time. Our team can confirm what is currently approved for your client.

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Reviewed by Tim Fuller on 2026-09-26

Tim Fuller

President, SRS Inc.

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Gifting to Fund Life Insurance Premiums: Why the Gift Rules Matter

September 26, 2026November 30, 2021 by Tim Fuller

It is rarely hard to show clients they need life insurance. Finding the premium dollars is the harder part. Gifting can solve that problem, and understanding the basic gift rules helps you design cases that work for clients and their families.

Key takeaways

Gifts of cash to an adult child or a trust can fund a policy on the giver while keeping the death benefit out of the giver’s taxable estate.
Annual exclusion gifts and the lifetime exemption, now $15 million per person, give most clients ample room to fund premiums.
Gifting can also equalize an estate when some heirs inherit property and others do not.

When the giver dies, the child receives a tax-free death benefit that can replace the support the parent used to provide.

Why advisors need to know the gift rules

Gifting shows up in many advanced markets cases, from ILIT funding to split-dollar and family business planning. It creates opportunities, but it can also create complications, such as unexpected gift tax filings, if a case is structured carelessly. A working knowledge of the rules lets you spot the opportunity and avoid the trap. For a broader overview, see our article on lifetime gifting strategies.

How gifts fund life insurance

The mechanics are simple. A client gives cash to an adult child or to an irrevocable trust. The child or trustee applies for and owns a policy on the client’s life and uses the gifted cash to pay premiums. At the client’s death, the death benefit is paid to the owner-beneficiary income-tax-free and, because the client never owned the policy, it generally stays out of the client’s estate.

Gifts up to the annual exclusion amount per recipient generally require no gift tax return.
Larger gifts use part of the client’s lifetime exemption, which is $15 million per person from 2026 under the One Big Beautiful Bill Act.
Gifts to a trust usually need Crummey withdrawal rights to qualify for the annual exclusion.

Example: equalizing an estate with a gift

A father has three children. Two want to keep real estate that has been in the family for generations. The third, Jill, has no interest in owning it. To keep things fair, the father gives Jill cash each year so she can buy a policy on his life. At his death, the real estate passes to the two children who want it, and Jill receives the death benefit. Because Jill owns the policy, the proceeds stay out of the father’s taxable estate. Our article on estate equalization explores this idea further.

Financial and emotional reasons to give

Some clients give to reduce a future estate tax. Many more give because they want to see their family benefit, help a child with a specific need or make sure support continues after they are gone. Life insurance multiplies the value of those gifts. Contact SRS for help designing gift-funded cases and comparing carriers.

Frequently asked questions

Does a child need an insurable interest to own a policy on a parent?

Yes, and close family members generally have one. The parent must also consent to the coverage and take part in underwriting.

Should the policy be owned by the child or by a trust?

A trust adds control, creditor protection and clear distribution terms, which matter for larger policies or multiple heirs. Direct ownership by an adult child is simpler for smaller cases.

Does paying premiums through gifts require a gift tax return?

Not if the gifts fall within the annual exclusion and qualify as present-interest gifts. Larger gifts, or gifts to trusts without proper withdrawal rights, may require a return.

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Reviewed by Tim Fuller on 2026-09-26

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President, SRS Inc.

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Critical Illness Insurance: An Overlooked Cross-Selling Opportunity

September 26, 2026November 24, 2021 by Tim Fuller

Medical advances mean more people survive illnesses that once would have been fatal. Surviving is good news, but living through treatment and recovery can create serious financial strain. Critical illness insurance pays a lump sum on diagnosis, and it is an easy product to add to existing client conversations.

Key takeaways

Critical illness insurance pays a lump sum on diagnosis of a covered condition such as cancer, heart attack or stroke.
Some plans include a return-of-premium death benefit if the insured dies of a non-covered cause.
Clients with a family history of cancer, heart disease or hypertension are often the most receptive.

Health insurance pays the hospital; critical illness insurance helps pay for everything else while a client recovers.

Why health insurance isn’t enough

Traditional health coverage focuses on hospital, physician and pharmacy costs. A serious diagnosis also brings deductibles, coinsurance, childcare, travel for treatment, short-term home health care and lost income. Those bills arrive when the client should be focused on recovering. A disability policy can replace income; see our article on income protection. Critical illness coverage adds cash for the rest.

How critical illness coverage works

The policy pays a tax-free lump sum when the insured is first diagnosed with a covered condition. The client can use the money however they choose. Benefit amounts vary widely, with some carriers offering up to $500,000, and term periods such as 10, 15, 20 or 30 years.

One plan we have worked with pays benefits in three ways:

The full benefit on diagnosis of one of its covered illnesses, which include cognitive impairment and Alzheimer’s disease
The full benefit to the beneficiary if the insured dies from a covered illness
A return of all premiums paid to the beneficiary if the insured dies from another cause

While many critical illness policies reduce benefits at 65, some extend full benefits to 70. Confirm current features and pricing, as they change.

Which clients to approach first

Clients with a family history of cancer, heart disease or hypertension
Clients on high-deductible health plans
Self-employed clients and business owners without group coverage
Existing life and disability clients as an add-on review

Adding it to your practice

Critical illness coverage is simple to explain and often affordable, which makes it a natural follow-up after a life or disability sale. It is also a good complement to the medical expense riders available on some disability policies. Contact our disability team for current plans, quotes and client-approved materials.

Frequently asked questions

Are critical illness benefits taxable?

When the individual pays premiums with after-tax dollars, benefits are generally received tax-free. Employer-paid arrangements can differ, so confirm with a tax advisor.

How is critical illness insurance different from disability insurance?

Disability insurance replaces income over time if the client cannot work. Critical illness insurance pays a lump sum on diagnosis, whether or not the client stops working.

What if the client never gets sick?

With a standard plan, premiums pay for protection only. Some plans include a return-of-premium feature that refunds premiums at death from a non-covered cause, usually at a higher cost.

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Reviewed by Tim Fuller on 2026-09-26

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President, SRS Inc.

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Transfer-for-Value Risk in Cross-Purchase Buy-Sell Agreements

September 26, 2026November 24, 2021 by Tim Fuller

A cross-purchase buy-sell funded with life insurance can be inexpensive to set up and fund. But when there are three or more owners, the first death can move policy ownership in a way that exposes the survivors to transfer-for-value tax on the next death benefit.

Key takeaways

When jointly owned buy-sell policies change hands after an owner’s death, the transfer can violate the transfer-for-value rule.
A violation can make part of the death benefit taxable income to the new owner.
A planned ownership reset after the first death, reviewed by a tax advisor, can often solve the problem at lower cost than restructuring up front.

The shift in policy ownership caused by the first death is probably a transfer for value, and a large part of the next death benefit could become taxable.

How the problem arises

Consider three young, healthy owners, Sharon, Caroline and Andrea, who run an LLC taxed as an S corporation. They agree to buy out any owner’s estate for $1,000,000, and each is insured for that amount. The two non-insured owners jointly own each policy. Sharon and Caroline, for example, own the policy on Andrea.

If Andrea dies, her policy funds the purchase of her interest. But her share of the two remaining policies passes to the survivors, so Sharon becomes sole owner of the policy on Caroline and vice versa. That change in ownership for value is likely a transfer for value, which can cause the death benefit, less the new owner’s basis, to become taxable income.

The exceptions and why they may not help here

Transfers to the insured, to a partner of the insured, to a partnership in which the insured is a partner or to a corporation in which the insured is a shareholder or officer are exceptions. The most common fix is a partner-to-partner transfer. But these owners are taxed as an S corporation, and co-shareholders are not an exception. Converting to partnership taxation, or forming a separate partnership just to hold the policies, may cost far more than the annual premium, all to prevent a tax that only arises if a second death occurs while they are still in business.

A practical approach: plan the reset

A reasonable approach is to document, with the client’s tax advisor, a plan to reset ownership if a first death occurs:

Transfer each remaining policy back to its insured, an exception that also cleanses the policy of prior transfer-for-value taint.
Form a partnership between the surviving owners, incurring the cost only when it is actually needed.
Have the owners exchange policies so each owns the policy on the other, now protected by the partner exception.

Put the recommendation in writing for the client and their tax advisor, and keep a copy in your file to show the issue was raised. Our article on cross-purchase buy-sell agreements covers the broader design.

What about entity redemption?

Having the business own the policies avoids multiple cross-owned contracts. After Connelly v. United States (2024), however, company-owned life insurance used to redeem a deceased owner’s shares can increase the company’s value for estate tax purposes. Each structure has trade-offs, and SRS can help you and the client’s advisors compare them.

Frequently asked questions

What is the transfer-for-value rule?

If a life insurance policy is transferred for valuable consideration, the death benefit can become taxable income to the new owner, less what they paid and later premiums, unless an exception applies.

Are S corporation shareholders covered by the partner exception?

No. Co-shareholders are not an exception. A transfer to the corporation itself, or to the insured, can qualify.

Does a trusteed cross-purchase avoid the issue?

It can simplify ownership with many owners, but the trust arrangement must be carefully drafted. The client’s attorney should review how transfers are handled after a death.

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Reviewed by Tim Fuller on 2026-09-26

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President, SRS Inc.

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Social Security Maximization: Turning Unneeded Benefits Into a Legacy

September 26, 2026November 24, 2021 by Tim Fuller

Some affluent clients at or near retirement collect Social Security benefits they do not need to live on. Instead of letting those payments pile up in a checking account, they can redirect them into life insurance and turn a modest income stream into a meaningful legacy.

Key takeaways

Unneeded Social Security income can be gifted to an ILIT to pay premiums on survivorship or single-life coverage.
In one case, a couple’s net Social Security income of about $14,000 a year funded a survivorship policy of roughly $973,000.
The strategy works best for insurable clients whose retirement income is already covered by other sources.

A couple netting about $14,000 a year in Social Security they didn’t need used it to fund nearly $1 million of survivorship coverage for their heirs.

Who this strategy fits

Clients at or past Social Security claiming age with other income sources covering their lifestyle
Couples who want to leave more to children or grandchildren
Clients in reasonable health who can qualify for competitive rates
Families interested in a trust-based legacy plan

It often pairs well with other income clients do not need, such as required minimum distributions. See our article on using RMDs in life insurance sales.

Case study: a couple redirects $14,000 a year

A 69-year-old man and his 65-year-old wife were receiving a combined $24,000 a year from Social Security that they did not need. After taxes, they were netting about $14,000.

After meeting with their advisor, they chose to gift $14,000 a year to an irrevocable life insurance trust. The trust purchased a survivorship universal life policy with a death benefit of about $973,000, payable to the trust for their children and grandchildren.

Premiums and death benefits depend on ages, health, product and current pricing, so any new case should be illustrated with today’s rates.

How the structure works

The clients continue collecting Social Security as usual.
Each year they gift the net amount to an ILIT, typically within annual exclusion limits.
The trustee pays the policy premium.
At the second death, the trust receives the death benefit income-tax-free and distributes it under the trust terms.

Survivorship coverage is often a cost-effective choice for married couples because it insures two lives and pays at the second death. For more on gift planning, see our article on lifetime gifting.

Presenting the choice to clients

For many clients the decision is simple: let unneeded income sit, or use it to build a lasting legacy. Our case design team can run survivorship and single-life illustrations so you can show clients exactly what their benefit could buy.

Frequently asked questions

Is Social Security income taxable?

Up to 85% of benefits can be subject to federal income tax depending on the client’s other income. The strategy typically uses the after-tax amount to fund premiums.

Why use survivorship life insurance?

It insures two people and pays at the second death, which often lines up with when an estate passes to heirs. It is usually less expensive than two separate policies.

Does the policy have to be owned by an ILIT?

No, but a trust keeps the death benefit out of the taxable estate and lets the clients set terms for how heirs receive the money.

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Reviewed by Tim Fuller on 2026-09-26

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Long-Term Care Awareness Month: A Guide for Advisors and Families

September 25, 2026November 24, 2021 by Tim Fuller

Adult daughter and her aging mother sharing a warm moment while discussing long-term care planning

November is Long-Term Care Awareness Month, a good reminder for families to talk about something most would rather avoid: what happens if someone needs extended care, and how it would be paid for.

Key takeaways

Close to 70% of people turning 65 will need some form of long-term care.
Health insurance and Medicare don’t pay for most extended custodial care.
In 2025, a private nursing home room cost a national median of about $130,000 a year, and assisted living about $74,400.

A private nursing home room now costs a national median of about $130,000 a year. Most families have never planned for that.

The key facts

Close to 70% of people turning 65 will need some type of long-term care services.
Many people assume health insurance or Medicare will pay. Neither covers most extended custodial care.
National median costs in 2025: about $74,400 a year for assisted living and about $130,000 a year for a private nursing home room (CareScout 2025 Cost of Care Survey). More in our 2025 cost of care summary.

What’s at stake

A few years of care can drain a lifetime of retirement savings. The emotional and physical strain on family caregivers can be just as heavy. Long-term care insurance protects retirement assets and helps ensure a loved one is cared for in the setting they prefer.

Why buying earlier helps

Premiums are lower, and qualifying is easier, when clients buy younger and healthier. Traditional LTC premiums aren’t guaranteed and can rise if the carrier raises rates for an entire class of policyholders, while many hybrid products offer guaranteed premiums. Either way, the cost of coverage is usually far less than paying for care out of pocket.

Use the month to start conversations

Awareness month gives advisors a natural reason to reach out. Try eight ways to ease into the talk, and contact our LTC team for design help.

Frequently asked questions

When is Long-Term Care Awareness Month?

November.

What are the chances of needing long-term care?

Close to 70% of people turning 65 will need some type of long-term care services during their lives.

Can long-term care insurance premiums increase?

Traditional LTC premiums can increase if the carrier raises rates for an entire class of policies. Many hybrid policies have guaranteed premiums.

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Reviewed by Tim Fuller on 2026-09-25

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President, SRS Inc.

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Structuring Buy-Sell Life Insurance: Avoiding Too Many Policies in a Cross-Purchase

September 25, 2026November 16, 2021 by Tim Fuller

Professional working confidently at her desk, representing disability income protection

Many small and mid-sized businesses have no written plan for what happens if an owner retires, becomes disabled, or dies. Those that do often face a practical problem when funding a cross-purchase buy-sell with life insurance: the number of policies multiplies fast.

Key takeaways

Cross-purchase agreements give surviving owners a basis increase equal to the price they pay, which entity redemptions don’t.
With more owners, policies multiply: three owners need 6 policies, four need 12.
Partnerships can use one policy per owner held jointly by the other partners; other entities often use a separate LLC or partnership to hold the policies.

Three owners, six policies. Four owners, twelve. A cross-purchase gets complicated fast without the right structure.

Why a written agreement matters

Without a written buy-sell agreement, owners don’t know who their partner will be tomorrow, whether that’s a deceased partner’s heirs or a competitor who bought out a co-owner. Oral understandings rarely hold up.

Why cross-purchase is often preferred

In a cross-purchase, owners buy each other’s interests directly, so the surviving owners’ income tax basis increases by the full purchase price. The 2024 Supreme Court decision in Connelly v. United States added another reason: when a corporation owns life insurance to redeem a deceased owner’s shares, the proceeds can increase the company’s value for estate tax purposes. See buy-sell agreements and transition planning.

The problem: too many policies

Each owner must own insurance on every other owner, so the number of policies is n × (n − 1). Two owners need two policies; three need six; four need twelve.

Solutions

Partnerships and LLCs taxed as partnerships: buy one policy per owner, held by the other owners jointly with right of survivorship. When an owner dies, rights reallocate among survivors, and because they’re partners, the transfer-for-value partner exception generally applies.
Corporations or when personal ownership is uncomfortable: hold the policies in a separate LLC or partnership created for that purpose, or use a trusteed cross-purchase.

Any structure only works if everyone follows through: the estate sells, and the survivors use the proceeds to buy. Coordinate with the clients’ attorney and tax advisor.

Frequently asked questions

How many policies does a cross-purchase buy-sell need?

n × (n − 1), where n is the number of owners. Three owners need six policies; four need twelve.

How did Connelly v. United States affect buy-sell agreements?

The 2024 decision held that corporate-owned life insurance used for a redemption can increase the company’s value for estate tax, making cross-purchase structures more attractive.

Can a partnership avoid multiple buy-sell policies?

Yes. Partners can hold one policy per owner jointly with right of survivorship, generally within the transfer-for-value partner exception.

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Reviewed by Tim Fuller on 2026-09-25

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Tim Fuller

The estate tax side

The income tax side

Other benefits

The catch: no step-up in basis

Frequently asked questions

Tim Fuller

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The trade-off with direct gifts

How charity-owned life insurance works

Design and tax points to confirm

Balancing charity and family

Frequently asked questions

Tim Fuller

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Why asking feels hard, and why it shouldn’t

Five reasons referrals outperform other leads

A simple script you can adapt

Making referrals a habit

Frequently asked questions

Tim Fuller

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The medical cost gap most clients overlook

Three types of riders to know

How to present the riders

Where these riders fit

Frequently asked questions

Tim Fuller

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Why advisors need to know the gift rules

How gifts fund life insurance

Example: equalizing an estate with a gift

Financial and emotional reasons to give

Frequently asked questions

Tim Fuller

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Why health insurance isn’t enough

How critical illness coverage works

Which clients to approach first

Adding it to your practice

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Tim Fuller

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How the problem arises

The exceptions and why they may not help here

A practical approach: plan the reset

What about entity redemption?

Frequently asked questions

Tim Fuller

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Who this strategy fits

Case study: a couple redirects $14,000 a year

How the structure works

Presenting the choice to clients

Frequently asked questions

Tim Fuller

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The key facts

What’s at stake

Why buying earlier helps

Use the month to start conversations

Frequently asked questions

Tim Fuller

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Why a written agreement matters

Why cross-purchase is often preferred

The problem: too many policies

Solutions

Frequently asked questions

Tim Fuller

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Tim Fuller