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Legal Fee Policy Concessional Legal Fees

Concessional Legal Fees

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Original Beneficial Ownership

 

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Additional Fact-Finding Fees

Variations of Draft Agreement

 

Initial Agreements:

Initial Agreements

Content of all Agreements

Current Legal Fees

Inadequate Insurance Proceeds

Trauma Buy/Sell Strategy

 

Alternative Initial Agreements:

Complete (BITA)

Complete (Hybrid BITA)

Simple (Self-Owned BSA)

 

Proprietors Agreements:

Proprietors Agreement

 

Debt Reduction Agreements:

Debt Reduction Agreement

 

Other Services:

Variation Agreements

Meetings and Advice

 

Cost Savings:

Cost Savings

 

 

 

Simple Succession Agreement

(Self-Ownership Business Succession Agreement)

 

Exclusive Buy/Sell Cover

Some Advisers and/or Clients only require the Asset or Buy/Sell Arrangements to be documented in an Agreement.

The Advisers in these cases have usually recommended that the Buy/Sell Cover be Self-Owned.

 

Two Alternative Agreements

IGS offers two alternatives for Clients or Advisers who wish to document Self-Ownership of the Buy/Sell Cover, whether or not other Cover is required.

The body of the standard Complete Succession Agreement (or Business Insurance Trust Agreement) contains provisions that allow the ownership of the Buy/Sell Cover to be either:

  • Self-Ownership; or

  • Trust Ownership.

The standard IGS Complete Succession Agreement allows the Clients to document Self-Ownership Buy/Sell arrangements, even if they do not require any Key Person or other Cover.

Thus, an Adviser who prefers Self-Ownership of the Buy/Sell Cover can utilise either:

 

Simple Succession (or Self-Ownership Buy/Sell) Agreement

This is a more traditional Buy/Sell Agreement which deals only with each Life Insured's Asset Need (i.e., the Buy/Sell or Equity Insurance Cover) on One Policy.

IGS usually prepares this type of Agreement where:

 

Simple Succession Plan

This type of Agreement is most suited to a Simple Succession Plan, which is restricted to the sale of each Life Insured's Equity in the Business (the Asset Need).

It requires the Buy/Sell Cover to be owned by:

It does not deal with Liability (such as Debt Reduction or Key Person Cover) issues.

Ownership of Equity in Business

By definition, Self-Ownership of the Buy/Sell Cover must pay the Purchase Price to the Life Insured or their Estate.

Therefore, preferably, each Life Insured should own the Equity in the Business in their own name (rather than in the name of a Related Party).

The parties can still use this Agreement, if they are comfortable with the Purchase Price being paid to the Life Insured or their Estate (rather than a Related Party Vendor).

 

Not A Vehicle for a Complete Succession Plan

The Business and Adviser should note that this type of Agreement:

  • does not utilise the unique Trust Structure developed by IGS;

  • deals only with the Buy/Sell or Equity Insurance Cover (the Asset Need);

  • requires the Buy/Sell or Equity Insurance Cover to be written on a separate Policy to any other Business or Personal Cover;

  • requires the Life Insured to own the Policy;

  • pays the Buy/Sell or Equity Insurance proceeds to the Life Insured (or their Estate), regardless of whether they are the actual owners of the Equity;

  • might leave the actual owner of the Equity with an un-funded CGT liability (if it does not receive the Insurance Proceeds attributable to the Purchase Price);

  • does not deal with any Debt Reduction or Key Person Capital Cover required by the parties; and

  • leaves all other cover to be dealt with outside the framework of an Agreement.

 

Simple Succession One Policy Worksheet

Click here to see a Risk Analysis Worksheet completed for a Simple Succession Plan held on One Policy pursuant to the terms of a Self-Ownership Business Succession Agreement.

 

Appropriateness of Simple Succession (or Self-Ownership Business Succession) Agreement

Self-Ownership of the Buy/Sell Cover is an adequate strategy for a Simple Succession Plan.

It focuses on the Sale Price of the Life Insured's Equity in the Business (the Asset Need).

It also requires the Insurance Proceeds to be paid to the Life Insured (or their Estate), whether or not they are the actual owner of the Equity in the Business.

Ultimately, a Simple Succession Plan (documented by a Simple Succession Agreement or Self-Ownership Buy/Sell Agreement) is most suited to a Business with the following characteristics:

  • each Life Insured's Equity in the Business is owned by the Life Insured (not a Related Party);

  • it is unlikely that there will be any growth in the value of the Equity over time that might require additional Buy/Sell Cover (which could be funded by the re-allocation of surplus Personal Cover);

  • there are no Debt Reduction or other Key Person Needs with respect to any of the Lives Insured; and

  • none of the Lives Insured require additional Personal Cover (that could be re-allocated to Buy/Sell Cover as required).

A Complete Succession Agreement (or Business Insurance Trust Agreement) can document both a Simple Succession Plan and a Complete Succession Plan.

 

Comparison of IGS Simple Succession (or Self-Ownership Business Succession) Agreement with Traditional Self-Ownership Buy/Sell Agreements

The standard version of the IGS Agreement gives Business Proprietors a number of additional benefits that are not provided by traditional Self-Ownership Buy/Sell Agreements within the standard Legal Fee:

  • It includes provisions for Death, TPD and Trauma Buy/Sell arrangements within the standard Legal Fee;

  • It includes provisions for Retirement and other Uninsured Events within the standard Legal Fee;

  • It pre-agrees the Purchase Price, unless the parties wish to rely on a valuation at the time of a sale;

  • It includes Vendor Finance Provisions with respect to any shortfall in the Insured Purchase Price within the standard Legal Fee;

  • It includes Super Buy/Sell Provisions, if required by the Adviser and Clients

  • The Legal Fees with respect to the Initial Agreement and any future Variation Agreements are fixed.

Click here to read a comparison of the benefits under the IGS and traditional Self-Ownership Buy/Sell Agreements.

 

Super Fund Ownership of Buy/Sell Cover

4 June, 2014 Adviser Alert:

Adverse SMSF Specific Advice re Super Buy/Sell Cover and Agreement

On 12 March, 2014, the ATO issued a private SMSF Specific Advice which effectively concludes that the practice known as “Super Buy/Sell” contravenes the Sole Purpose Test under section 62 of the Superannuation Industry (Supervision) Act.

Click here to read more about the ATO Advice.

 

IGS uses this Agreement if the Lives Insured require the Buy/Sell Cover to be owned by a Public Offer Super Fund or Self-Managed Super Fund, where considered appropriate by the Adviser and Business.

Recipient of Super Buy/Sell Insurance Proceeds

If this structure is used, the Insurance Proceeds must be distributed by the Policy Owner or Trustee of the Super Fund in accordance with the terms of the Trust Deed or any binding Nomination of Beneficiary (regardless of whether the Recipients are the actual owners of the Equity).

Related Party Vendors

If the actual owner of the Equity is a person or entity other than the Life Insured (e.g., a Family Company or Trust), then Super Fund Ownership will not result in the Insurance Proceeds being paid to the actual owner of the Equity.

However, the Agreement will still require the owner of the Equity to transfer it to the Purchasers for no additional payment or consideration.

In effect, the Purchasers will receive credit for the Insurance Proceeds against the Pre-agreed Sale Price they would otherwise have to pay the Vendors.

Some of the implications of not paying the Sale Price to the actual Vendors are discussed here.

Super Fund Ownership

Click here for an overview with respect to Super Fund Ownership.

Super Buy/Sell Cover

Click here for an overview with respect to Super Fund Ownership of Buy/Sell Cover.

 

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.

 

Initial Client Meeting and Advice Fee

No provision has been made in the Legal Fee for a Meeting or Teleconference.

If a Meeting or Teleconference is required, the standard Meeting and Advice Fee is additional to the cost of a Self-Ownership Business Succession Agreement.

 

Standard Legal Fees

Legal Fee (Up to Four Individuals)

Standard Legal Fee (No Meeting or Teleconference) : $2,200

Standard Legal Fee (With Meeting or Teleconference) : $3,190

 

Legal Fee (More than Four Individuals)

The above Fees apply up to the first four individuals.

There is an additional Fee of $330 per individual for each individual exceeding four individuals.

 

Additional Fact-Finding Fees

It is not always possible to complete all of the details of the Business Structure and Liabilities of the Business in the Client Meeting or Teleconference.

If the information is not supplied in the Questionnaire, there will be an additional Legal Fee of $440 to collect the information from the Business or its Advisers, review it and incorporate it into the Succession Plan and Documentation.

Click here to read more about the Additional Fact-Finding Fees.

 

Any Variation of Incomplete Draft Agreement

There will be an additional Fee for the finalisation of an incomplete draft Agreement not finalised within six months of the first draft:

  • After six months from first draft: $440

  • After 12 months from first draft: the standard Fee for an Initial Agreement

Failure to finalise any Agreement promptly can have serious adverse commercial, legal and taxation implications for the Business and the other parties to the Agreement.

 

Original Beneficial Ownership of Policies

The Life Insured is intended to be the Original Beneficial Owner of the Policy.

In the absence of a Business Succession or Buy/Sell Agreement, parties other than the Life Insured might have an equitable or beneficial interest in the Policy and the Insurance Proceeds.

As a result , any delay in the instructions to prepare the Business Succesion Agreement can result in Capital Gains Tax being paid on the Insurance Proceeds at the time of a subsequent claim.

Please click here to read about the potential adverse CGT implications of not having a contemporaneous Business Succession or Buy/Sell 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.