Home

 

Overview:

Business Succession Agreements

 

Types of Agreement:

Types of Agreement

Cross Ownership:

Cross Ownership

Self Ownership:

Self Ownership

Related Party Vendors

Deemed Dividends

Risks If No Agreement

Trust Ownership:

Trust Ownership

Tax Implications

"Business Family Will"

Changing Needs

Benefits

Choice of Trustee

Super Buy/Sell

 

Drafting Issues:

Put Options

Call Options

Put and Call Options

Conditions Precedent

Put and Call Options vs. Conditions Precedent

 

Other Issues:

Pre-Agreed Purchase Price

Inadequate Insurance Proceeds

Trauma Buy/Sell Strategy

Simultaneous Deaths

 

Debt Reduction Agreement:

Debt Reduction Agreement

 

 

 

 

 

Trust Ownership Agreement

 

IGS offers two types of Complete Succession Agreement:

Both versions include Trust Ownership Provisions.

The main difference is how the Schedules are completed, in order to reflect the number of Policies required by the Business and its Advisers.

If utilised, the Trust Ownership Provisions require each Policy to be owned by a Trustee on behalf of the relevant Life Insured.

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

 

Summary

An IGS Single Policy -Owner Complete Succession Agreement (or Business Insurance Trust Agreement) is designed to achieve four principal goals:

  • It avoids Capital Gains Tax with respect to the Insurance Proceeds in the case of both Death and Non-Death Benefits;

  • It can distribute the Insurance Proceeds to a number of different Recipients (not just the Life Insured or their Estate);

  • It can aggregate different Business and Personal Cover onto one Policy with respect to each Life Insured; and

  • When the Life Insured’s needs change, it might only be necessary to change the allocation of the Sum Insured in the Agreement (rather than changing the different Policies with the Insurance Company).

 

CGT Exemptions

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

Underneath the "roof" of a standard IGS Agreement, the Life Insured is the "Beneficial Owner" of the Policy.

As a result, the Agreement obtains a CGT exemption with respect to both Death and Non-Death Benefits.

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

(N.B. under any method of ownership, there might still be CGT payable with respect to the Sale Price of the Equity.)

 

ATO Ruling

Click here to read about the Tax Implications of the IGS Business Insurance Trust Agreement.

 

Directions to Trustee

Because the Life Insured is the Beneficial Owner of the Policy, it is entitled to direct the Trustee (or Legal Owner) how to distribute the Insurance Proceeds on behalf of the Life Insured.

For example, the Life Insured may direct the Trustee to pay:

  • the Purchase Price to the appropriate Vendor (including a company or family trust);

  • any Debt Reduction Cover to the appropriate Creditor;

  • any other Key Person Cover to the Business (or the Continuing Proprietors); and

  • any Personal Cover to the Life Insured, their Estate, a Nominated Recipient or a Self-Managed Superannuation Fund

Analogy with Wills

This process is similar to the administration of a Will where the Executor:

  • holds the assets of the Estate as Trustee; and

  • distributes the assets of the Estate to one or more Beneficiaries in accordance with the directions of the Testator in the Will.

A Trust Ownership Agreement is in effect a "Business Family Will".

"List of Cheques"

The process is also similar to the situation where a customer of a Bank signs a cheque that directs the Bank to pay funds to the payee or presenter of the cheque.

In a commercial sense, the money belongs to the customer, but the customer directs the Bank what to do with it.

A Trust Ownership Agreement effectively constitutes a "list of cheques" that must be distributed by the Trustee upon the occurrence of an Insured Event.

In a sense, when the Agreement is signed, a number of cheques are signed and placed in separate envelopes on the shelf.

If an Insured Event occurs, the cheques are posted off to the Nominated Recipients.

The amounts of the cheques are pre-agreed when all of the parties are alive.

As the needs of the parties change, they simply pre-agree up-to-date amounts.

 

One Policy Strategy

Instead of having separate Policies for Buy/Sell Insurance, Key Person Insurance and Personal Insurance, a Trust Ownership Agreement is the most appropriate vehicle to aggregate different cover onto one Policy (the “One Policy Strategy”).

This creates greater flexibility and ability to deal with changing needs.

In effect, a Business Insurance Trust Agreement is a legal engine for a "One Page, One Policy Succession Plan".

 

A "Business Family Will"

Many people describe a Buy/Sell Agreement as a "Business Will".

This is only partly true in the case of Self-Ownership Buy/Sell Agreements.

In reality, a Business Insurance Trust Agreement is a better example of a Business Will or a "Business Family Will".

Click here to read how a Business Insurance Trust Agreement operates like a "Business Family Will".

 

Changing Needs

Click here to read about how the Agreement deals with the changing needs of the Business and Lives Insured.

 

"Horses for Courses"

Click here to read a response to the view that a Business Insurance Trust Agreement might not be appropriate for some Businesses, because their Buy/Sell or Succession Planning needs are relatively "simple".

 

Client Summary of Agreement

Click here to see a brief Summary of the purpose and effect of the Agreement.

 

Benefits of a Business Insurance Trust Agreement

Click here to see a summary of the benefits of a Business Insurance Trust Agreement.

 

Choice of Trustee

Click here to read about your choice of Trustee.

 

One, Two and Three Policy Succession Plan Worksheets

Click on the following links to see a Risk Analysis Worksheet completed for:

 

Fixed Legal Fees

The Fixed Fee charged by IGS depends on the choice of Agreement.

Click here to see the current Fees for all Agreements and Services.

These Fees apply subject to the Legal Fee Policy.

 

 

Copyright: Ian Gray Solicitor

 

 

Adviser Tip

Trust Ownership can do everything that Self-Ownership can do, but Self-Ownership can't do everything that Trust Ownership can do.

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.