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Adviser Tips

Many of the pages on the Complete Succession web site contain an Adviser Tip in the right hand column.

They are gathered below:

1.0.0

A Complete Succession Plan is not just about Death, it's not just about Insurance and it's not just about selling your Equity.

1.1.0

The One Page Strategy is designed to help you simplify Succession Planning.

It helps you understand your needs, it helps you quantify them, it helps you cost them, and it helps you prioritise them.

Once you have designed your initial Succession Plan, keeping it up-to-date is as simple as changing the One Page Summary in your Business Succession Agreement.

1.1.1

In the case of Retirement, a Complete Succession Plan can pre-agree the Purchase Price and specify a timeframe for payment.

If you do not have adequate insurance for an Insurable Event, your Succession Plan can specify a timeframe for payment of the shortfall.

1.1.2

Your guarantees don't die when you do.

When you leave a Business, you need to exit both the Asset and the Liability side of the ledger.

1.1.3

Your Personal Cover can be the "warehouse" or "comfort zone" that allows you to fund any increase in the Purchase Price.

1.1.4

The One Policy Strategy "aggregates" Premiums that would otherwise have been separate.

When the responsibility for payment of the Premium is calculated, you can "segregate" or split the total Premium proportionately to the amount of each component of the Sum Insured.

1.2.0

In most cases, the One Policy Strategy will result in reduced Policy Fees every year (usually between $50 and $100 per Policy per annum).

It also attracts significant discounts with respect to the annual Premium for higher sums insured.

1.2.1

Your Purchase Price and your Personal Cover both contribute to the "pot" you have created to fund the total capital requirements of your family.

As your Purchase Price increases over time, your Personal Cover can come down.

If they are both on the One Policy, all you have to do is "change the mix".

1.2.2

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.

1.2.3

Regardless of the type of Agreement that documents your Succession Plan or Buy/Sell arrangements, there would be costs associated with any future variation of the Agreement.

However, the cost of variations of the Business Insurance Trust Agreement is designed to be funded as far as practicable within the scope of the savings in Policy Fees and Premiums.

1.2.4

The best time to agree the Purchase Price is when all parties are alive, not when one of them has died.

When everybody is alive, "nobody knows whether they will be the first to die or the first to buy".

This way, nobody will try to increase the Price (thinking they will receive it first) or decrease the Price (thinking they will have to pay it first).

1.3.0

Traditionally, Advisers have arranged a separate Policy for each separate need, often owned by different Policy Owners.

After a few years, nobody knows what Cover they have, what it's for, whether it's for the right amount or whether the Insurance Proceeds will be paid to the right Recipient.

1.3.1

A Volume Discount on 100% of the total Sum Insured held by the Insurance Trust might be worth more than a tax deduction for 50% of the Sum Insured, even though none of the Cover held by the Insurance Trust might be held in the superannuation environment.

2.0.0

Trust ownership is an indirect form of self-ownership.

The Life Insured is the "beneficial owner" for legal and tax purposes under the roof of the Trust.

2.1.0

Most Advisers and Accountants are aware that Cross-Ownership can result in a capital gains tax liability with respect to Buy/Sell Cover.

However, they don't realise that it can also result in a CGT liability for Debt Reduction and Key Person Capital Cover.

Unfortunately, Self-Ownership can solve the problem for Buy/Sell Cover, but it can't solve it for Debt Reduction or Key Person Capital Cover.

2.2.0

Self-Ownership must pay the insurance proceeds to the Life Insured or their Estate.

It cannot pay them to a Related Party that owns some of the Equity in the Business (e.g., a Family Trust or Company) nor can it pay them to a Creditor without adverse tax implications.

2.3.0

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

2.3.1

There are circumstances in which Insurance Cover held by a Super Fund will be taxable, even though it would have been tax-free if held in the name of the Life Insured.

The Life Insured must determine whether it makes sense to get a deduction for a premium of say 0.3% of the Sum Insured, but be liable to pay tax on 100% of the Insurance Proceeds at the time of a claim.

This tax liability will be additional to any CGT payable with respect to the sale of Equity in the Business.

3.3.1

The One Policy Strategy is designed to place all of the cover under the one roof.

Once it is under the roof, you might find that you have the right total Sum Insured for the indefinite future.
All that needs to be changed is the "mix" or allocation of the cover.

3.3.3

The Trustee controls the Insurance Proceeds, but the Trust Agreement controls the Trustee.

The Trustee has a contractual and fiduciary obligation to comply with the obligations contained in the Trust Agreement.

3.4.0

"Conditions Precedent" and "Put and Call Options" are just methods of legal drafting that postpone the date of disposal of the Equity in the Business from the date of the Business Succession Agreement to after the date of occurrence of the Insured Event.

If correctly drafted, both methods are acceptable to the ATO.

4.0.0

The IGS Fixed Fee Policy is designed to help a Business know the exact cost of its Succession Plan, so that it can fine tune the strategy within an affordable budget.

4.1.0

The standard Fee allows for up to two (2) hours’ consultation with the Adviser or Client with respect to the Client’s needs and the completion of the Questionnaire.

4.2.0

Licensed Advisers have undertaken training that allows them to deal with clients' needs more time- and cost-effectively.

4.3.1

All standard IGS Agreements are intended to give a Business greater functionality, security, tax-effectiveness and cost-effectiveness than a Business Succession Agreement prepared by other Lawyers.

4.3.4

The Hybrid Agreement is the appropriate engine for a One Page, Multiple Policy Strategy where the Business requires some of the Cover to be held in the Super environment.

This might entitle the parties to tax deductions for some of the Premium, but might also expose the Insurance Proceeds to a tax liability in some cases.

4.3.6

The standard IGS Proprietors Agreement documents the relationship with respect to all of the entities, not just a single entity.

4.5.0

IGS makes allowance in the Fee for an additional one hour of telephone or email advice to the Business or the Adviser with respect to the content of the draft Succession Plan, the Statement of Advice, the Questionnaire and the Procedure.

4.6.0

The average premium cost of the Trustee’s Fee is less than one annual Policy Fee.

5.0.0

The Adviser Support System is designed to overcome an Adviser's technical concerns about Business Succession Planning.

5.1.0

Client and Centre of Influence Meetings are conducted during cyclical, four-to-six-weekly Marketing Trips to each capital city at no additional cost to a Licensed Adviser or their Client.

5.2.0

The One Page Succession Plan enables the Adviser to make a comprehensive Insurance Proposal with respect to the Needs of the Business after the first Meeting.

5.3.0

For Advisers with a current Marketing Licence, there is no Meeting and Advice Fee payable by an actual or prospective Client and/or Centre of Influence for an Initial Meeting or Advice of up to two hours.

5.4.0

For Advisers without a current Marketing Licence, the Meeting and Advice Fee paid by the Business is credited against the Documentation Fee if the Documentation proceeds.

5.5.0

A Gold Marketing Licence is restricted to Meetings (including Teleconferences) and Advice with respect to two (2) Clients and/or Centres of Influence during the 12 month period.

5.6.0

A Platinum Marketing Licence is unrestricted with respect to the number of Clients and/or Centres of Influence with respect to whom an Adviser may arrange a free initial Meeting and Advice during the 12 month period.

5.7.0

The Training Session is designed to help an Adviser market Business Insurance methodically and confidently.

Copyright: Ian Gray Solicitor

 

 

Adviser Tip

The Adviser Support System is designed to overcome an Adviser's technical concerns about Business Succession Planning.

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.