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Welcome:

Welcome

Site Map:

Site Map

Adviser Updates:

Adviser Updates

Publications and Documents:

Publications and Documents

 

Business Succession Planning:

Business Succession Planning

Need for Succession Plan

Need for Asset or Buy/Sell Strategy

Need for Liability or Key Person Strategy

Negotiating a Succession Plan

 

Simple Succession Plan:

Simple Succession Plan

 

Complete Succession Plan:

Complete Succession Plan

Strategy

Financial Needs

Insurance Funding

Retirement Funding

 

One Page Strategy:

One Page Strategy

Asset Needs

Liability Needs

Personal Needs

Who Pays the Premiums?

Valuing the Business

Simplifying the Valuation Issue

Equity vs. Loan Capital

 

One Policy Strategy:

One Policy Strategy

Flexibility

Dual Role of Personal Cover

Dual Role of Debt Red'n Cover

Security & Tax-Effectiveness

Cost Savings

Pre-Agreed Purchase Price

Apportionment of Premiums

Methods of Aggregation

 

Multiple Policy Approach:

Multiple Policy Approach

Super Fund Ownership

Tax Disadvantages

Cost Disadvantages

Other Disadvantages

Geared Premium Funding

Super Buy/Sell

 

One Page, Two Policy Strategy:

One Page, Two Policy Strategy

 

Other Issues:

Tax Deductibility

Inadequate Insurance Proceeds

Vendor Finance

Changing Needs

Future Growth of Equity

Trauma Buy/Sell Strategy

 

Sole Proprietors and Families:

Sole Proprietors and Families

Overview

Family Ownership

Sale Strategies

Third Party Buy/Sell Strategies

Estate Equalisation Strategies

Family Buy/Sell Strategies

Second Generation Strategies

Debt Reduction Strategies

 

 

Security and Tax-Effectiveness

The One Policy Strategy ensures that each component of the Insurance Proceeds is paid to the intended Recipient securely and tax-effectively by the Policy Owner.

 

Role of Trustee

The One Policy Strategy requires the Policy Owner to hold each Policy on the terms of a Trust Agreement that requires pre-agreed amounts to be paid to pre-agreed Recipients.

One purpose of the Trustee is to ensure that the different components of the Insurance Proceeds are distributed to the intended Recipients with minimal risk of delay or default.

The Trustee is usually the Business itself or one of the entities within the Business Structure or Group (preferably a company).

See here for more information about the choice of Trustee.

Under the Trust Structure, the Business does not hold the Policy or the Insurance Proceeds for its own benefit.

The Insurance Proceeds are not available to a creditor of the Business while it holds them in its capacity as the Policy Owner or Trustee.

Instead, the Business holds the Insurance Proceeds on the trusts set out in the Trust Agreement and must distribute preagreed amounts to the Recipients nominated in the Agreement.

 

Ultimate Recipients of Insurance Proceeds

The intended Recipients are not always the Life Insured or their Estate.

They can include other Vendors, the Business, Creditors of the Business and the Continuing Proprietors.

It is important that there be adequate mechanisms to get the Insurance Proceeds securely from the Insurance Company to the intended Recipients.

The insurance and legal arrangements must jointly ensure that "the right money is paid to the right person at the right time".

The process by which this occurs is analogous to a Business Family Will.

If the Insurance Proceeds are simply paid to the Life Insured's Estate or the Business, there is a risk that the Proceeds might not be distributed to the intended Recipients.

It should be remembered that the primary justification for Self-Ownership is the fact that it avoids Capital Gains Tax on the Insurance Proceeds.

However, in many cases, it does so by getting the Insurance Proceeds to the wrong Recipient.

Self-Ownership Agreements

Traditional Self-Ownership Buy/Sell Agreements must pay the Insurance Proceeds to the Life Insured (or their Estate), regardless of whether they are the intended Recipient.

They also fail to deal with the taxation implications of any element of the Succession Plan other than the Purchase Price.

They therefore:

  • increase the risk that related insurance and payments required by the Succession Plan might not be structured securely or tax-effectively; and

  • expose Business People and Advisers to disputes and legal proceedings that can be easily avoided by a “One Page, One Policy” Succession Plan driven by a Business Insurance Trust Agreement.

 

CGT Implications

The Business Insurance Trust Agreement used by IGS ensures that the CGT implications with respect to every component of the Policy are adequately addressed by a legal agreement.

Please click here to read about the CGT implications of Trust Ownership.

 

ATO Ruling

Click here for a summary of the ATO Ruling with respect to the IGS Trust Agreement..

 

 

Copyright: Ian Gray Solicitor

 

 

Adviser Tip

Your choice of Policy Owner must not only take into account whether it obtains any CGT exemptions, it must also ensure that the Insurance Proceeds are paid to the right Recipient.

See more Adviser Tips

 

Current Marketing Schedule

Current Marketing Schedule

Ian Gray travels to most capital cities regularly throughout the year and is available for Meetings.

Please click here to see his availability in Brisbane, Sydney, Melbourne, Adelaide and Perth.

Please contact us to arrange an appointment or teleconference.