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Publications and Documents:

Publications and Documents

 

Adviser Tips:

Adviser Tips

 

Adviser Updates:

Adviser Updates

 

Individual Updates (Most Recent First):

2015 Amendments

Adverse ATO Advice on Super Buy/Sell Cover

Partnership and Trust Loan Accounts

Effect of Debt Reduction Cover on Buy/Sell Cover

Prioritising Needs

Simultaneous Deaths

Mutual Will Strategies

Joe Hockey on Trusts

Tax Treatment of Self-Ownership Agreements

Vested and Indefeasible Interest

Gross or Net Value?

Henry Report

Deemed Dividends

Super Buy/Sell Cover

Bamford in the High Court

Trauma Cover in Super

Origins of Self-Ownership

Fact-Finding

Methods of Aggregation

Valuing the Business

Duty to Give Tax Advice

Equity vs Loan Capital

Horses for Courses

Commercial Debt Forgiveness

Choice of Trustee

Simplifying the Valuation Issue

Hybrid Succession Strategy

Hedge and Wedge Strategy

Sole Proprietors and Families

Free Teleconference

Simple or Complete Succession?

Contemporaneous Agreement

Geared Premium Funding

Super Fund Ownership

Business Family Will

 

 

 

 

 

 

 

 

 

Adviser Updates

This page contains all of the formal Adviser Updates.

The most recent Updates are printed at the top of this page.

Individual Updates can also be accessed through the Menu Bar at the left of this page.

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10 July, 2015

2015 Amendments to Capital Gains Tax Exemptions for Compensation and Insurance under Income Tax Assessment Act 1997

On 19 March, 2015, the Federal Parliament passed a number of amendments to the Income Tax Legislation dealing with the taxation of Life Insurance Policies. Some of the amendments applied to the taxation of insurance policies held by Insurance Trusts.

The original exemptions were granted to the "original beneficial owner" of the Policy. If a Beneficiary was presently entitled to all of the Insurance Proceeds, it followed that the Trustee was also exempt.

The new exemptions are granted on the basis of the "original legal owner" of the Policy.

In the case of a Trust, the legal owner is the Trustee.

However, if the Trustee is exempt, the exemption extends to a Beneficiary. Thus, the amendments effectively reverse the logic of the original exemptions.

One consequence of this reversal is that the exemption now extends to the beneficiaries of a discretionary or family trust.

It continues to extend to a fixed trust or absolute entitlement trust (e.g., where the life insured is the absolutely entitled beneficiary).

Click here to read more about how the new exemptions apply to Insurance Trusts.

4 May, 2015

Adverse ATO Interpretative Decision re Super Buy/Sell Cover and Agreement

On 1 May, 2015, the ATO published an Interpretative Decision (ATO ID 2015/10), 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.

The ATOID resulted from the SMSF Specific Advice issued on 12 March, 2014 and referred to in this update.

The SMSF Specific Advice and the Update about it are more detailed than the abbreviated discussion in the Interpretative Decision.

However, here is a precis of the Decision:

  • The intended effect of the buy-sell agreement is the acquisition of the Member's shareholding in the company, on the death of the Member, by the Member's brother for no personal outlay by the Member's brother. The Fund would not have otherwise purchased the policy.

  • In this particular case, although subsection 62(1) of the SISA expressly allows an SMSF to be maintained for the provision of death benefits, the manner and circumstances in which the SMSF came to hold the insurance policy in question (as part and only because of the underlying buy-sell agreement), leads to the conclusion that the additional benefits sought by the parties in entering into the agreement cannot be regarded as being merely incidental to the core retirement income purposes of the SMSF.

  • The agreement is a major component of the Member's and his brother's company succession management. Having the policy held in the SMSF enables the Member's brother to gain total ownership and control of the company after the Member's death without personally incurring any expenditure.

  • Presumably, there exists no impediment to having the policy purchased or held outside of the SMSF (say, by the company or by the Member's brother). However, the SMSF has been utilised by an external agreement to which the SMSF is not a party in an arrangement which effectively relieves the Member's brother from having to provide money to pay the premiums on the policy and, in the event of the Member's death, from having to fund the purchase of the Member's share of the company.

  • It is clear the SMSF acts as a conduit under the agreement. The SMSF is required to use contributions made to it in a manner that may not accord with its investment strategy. The SMSF is essentially directed to invest contributions made to it in an asset it may not otherwise choose to hold (with resulting potential financial detriment to the SMSF as it is not able to invest contributions made to it that objectively would provide an overall higher return).

  • As it were, the agreement was entered into with a specific purpose of obtaining a particular significant, albeit indirect, benefit to the Member's brother. This immediate benefit to a related party (who is not a member) of the SMSF cannot be described as something that is incidental, remote or insignificant provided to the members of the Fund (paragraph 120 of SMSFR 2008/2). It is noted that the Member's spouse (the SMSF's other member) could have received the insurance proceeds without giving up any rights in relation to the Member's share of the company had the policy been acquired by the SMSF independently and not subject to the agreement.

  • Two factors support the above-stated position.

  • First, the calculation of the insured amount is not in any way based on the future needs of the Member's spouse, but is based on a valuation of the Member's share of the company.

  • Secondly, what the Member's spouse receives from this agreement, whilst ostensibly a death benefit payment from the SMSF, is in substance compensation for the spouse's expected inheritance from the Member's share of the company. From this, it is arguable that the contributions received by the SMSF to enable the premium payments were never intended to produce retirement benefits.

  • The collateral benefit to the (non-member) surviving brother is at least equal to what is being characterised as a future death benefit payment to the Member's spouse. This is a sought-for benefit that certainly isn't a mere incidental benefit. There is a deliberateness and purposefulness to this course of action which is difficult to reconcile with the underlying intention of the sole purpose requirements under section 62.

  • Having regard to all the facts and circumstances of the arrangement - most significantly, that the policy would not be purchased at all if it cannot be purchased by the SMSF in accordance with the terms of the agreement - leads to the conclusion that, in purchasing and holding the policy, the SMSF is not being maintained in accordance with the sole purpose requirements of section 62 of the SISA.

  • The SMSF's purchase of the life insurance policy in accordance with the term of the buy-sell agreement does not accord with the sole purpose requirements of section 62 of the SISA.

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26 March, 2015

Amendments to Capital Gains Tax Exemptions for Compensation and Insurance under Income Tax Assessment Act 1997

On 19 March, 2015, the Federal Parliament passed a number of amendments to the Income Tax Legislation dealing with the taxation of Life Insurance Policies.

The amendments have very positive implications for the Ian Gray Solicitor (IGS) Business Insurance Trust Agreement (or “Complete Succession Agreement”).

The Legislation confirms the entitlement of the Complete Succession Agreement to the CGT Exemptions for both Death and Non-Death Benefits.

However, it has also created scope for even more innovative and flexible use of the Complete Succession Agreement.

Stay tuned for more IGS technical and marketing materials and initiatives with respect to the amendments. [See the 10 July, 2015 update above.]

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4 June, 2014

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.

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20 November, 2013

Partnership and Trust Loan Accounts

Partnerships and Trusts are taxed quite differently from Companies and Individuals.

This difference can have a significant impact on the design of a Business Succession Plan for a Partnership or Trust.

Click here to read more about Partnership and Trust Loan Accounts.

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14 May, 2012

How Does Debt Reduction Cover Affect the Amount of Your Buy/Sell Cover?

Normally, the amount of a Proprietor's Buy/Sell Cover reflects their share of the Net Asset Value of the Business (i.e., Gross Assets less Liabilities).

However, what if the Business has Debt Reduction Cover that will reduce the Liabilities upon the occurrence of an Insured Event?

Does the Sale Price and Buy/Sell Cover need to reflect the reduction in Liabilities and the increase in Net Asset Value that occurs after the Insured Event and the payment of the Claim?

Click here to read more about the Strategies that are available under a Complete Succession Plan.

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23 February, 2012

Prioritising Needs

Sometimes your Needs exceed the amount of Insurance Cover that you can obtain.

This might make it necessary to insure some Needs rather than others or to reduce the amount of Cover allocated to a particular Need (or Needs).

Click here to read a guide that suggests how you might approach the relative priorities of your Needs.

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23 December, 2011

Simultaneous Deaths

Many Advisers and Clients ask about the possibility of two or more Proprietors dying in the same accident.

What are the implications for a Business Succession Plan?

How does the Business Succession Agreement deal with this situation?

Click here to read more about Simultaneous Deaths.

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15 December, 2011

Mutual Will Strategies

Many Advisers and fewer Clients ask about the possibility of using Mutual Wills to document the Buy/Sell Arrangements between the Proprietors of a Business.

This is a limited but dangerous Strategy for any Business.

Click here to read more about Mutual Wills.

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8 April, 2011

Joe Hockey on the Taxation of Trusts

In the space of 24 hours over 6 and 7 April, 2011, the Opposition Treasury Spokesman Joe Hockey made some comments about the taxation of Trusts, only to be criticised and effectively silenced (as he probably knew he would be).

IGS does not wish to analyse Joe Hockey's comments from a political perspective.

However, it is worth using them as the basis of a more considered policy debate.

Click here to read some thoughts on the proposal.

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16 March, 2011

Tax Treatment of Self-Ownership Buy/Sell Agreements

Self-Ownership is a solution to one particular tax issue: the different CGT treatment of Death and Non-Death Benefits in the context of Buy/Sell Cover.

The ATO recognised that Lawyers and Advisers use Self-Ownership as a method of avoiding the CGT on Non-Death Benefits that would have applied if the Buy/Sell Cover was owned by the Continuing Proprietors or Purchasers.

Until now , it has allowed the practice to continue, on the basis set out in a non-binding Statement of Principles issued in 2001.

However, the ATO has recently indicated that it does not regard the Statement of Principles as a correct statement of the law.

Click here to read what it said.

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1 February, 2011

Vested and Indefeasible Interest

The tax treatment of trust losses and franking credits in relation to Trusts depends on the existence of a vested and indefeasible interest in the capital and income of the Trust.

The meaning of the word "indefeasible" was briefly considered in the case of Colonial First State Investments Limited v Commissioner of Taxation [2011] FCA 16 (18 January, 2011).

Click here to read a discussion of the analysis of the concept of "indefeasibility" in the case.

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22 December, 2010

Gross or Net Value of the Business?

One of the most common errors made by Advisers with respect to Business Succession and Buy/Sell Insurance relates to the value of the Business and the amount of the Sale Price that each Life Insured or Vendor will receive upon the occurrence of a claim.

IGS frequently comes across situations where the Adviser has insured each Life Insured for the Gross Value of their Equity, instead of the Net Value.

Click here to read about why this mistake occurs and some of the adverse implications.

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2 May, 2010

The Henry Report: "Don't Ya Tell Henry"

The Henry Report was intended to be, and did end up being, a high level review of the tax system.

However, when you ascend to this height, you inevitably confront the ideological foundations of the tax system.

Thus, the driving force of the Henry recommendations is issues like fairness and efficiency.

Click here to read about the implications of the Henry Report and the Government's responses to Business Succession Planning.

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27 April, 2010

Deemed Dividends under Self-Owned Buy/Sell Cover

Many Businesses are not simply owned by the Lives Insured.

Many Business People avoid owning business assets in their own name, so that they can:

  • split taxable income between a number of taxpayers; and

  • minimise their personal exposure to creditors of the Business, litigation and the risk of bankruptcy.

In these cases, some or all of the Equity in the Business might be owned by a Third Party such as a Spouse, Company or Family Trust.

This situation will arise if:

  • the Business is a Partnership, and a Company is one of the Partners;

  • the Business is a Company, and another Company is one of the Shareholders; and

  • the Business is carried out through a Unit Trust, and a Company is one of the Unit Holders.

In the case of Businesses where the Equity is owned by a Company, Self-Ownership of the Buy/Sell Cover could give rise to a deemed dividend that is subject to income tax in the hands of the Life Insured (over and above any CGT liability that would be payable by the Vendor).

Click here to read about this potential liability.

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22 April, 2010

ATO's Views on Super Buy/Sell Cover

There is considerable uncertainty with respect to the legitimacy and tax-effectiveness of Super Buy/Sell Cover.

On 21 April, 2010, the ATO released SMSFD 2010/1, which clarifies the position with respect to Trauma Cover held by a Self-Managed Superannuation Fund.

The Determination contains a Compendium of Comments, one of which casts doubt on whether a Super Buy/Sell Strategy would comply with the Sole Purpose Test.

Click here to read about the Compendium.

 

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22 April, 2010

Trauma Cover in Super

The ATO has released SMSFD 2010/1, which clarifies the position with respect to Trauma Cover held by a Self-Managed Superannuation Fund.

The Determination is discussed in the Update dated 16 November, 2009 on the original Draft (see below).

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12 March, 2010 and 1 April, 2010

Bamford in the High Court

The appeal in the case of Commisssioner of Taxation v. Bamford was heard in the High Court on 2 and 3 March, 2010.

This Case will have major implications for the manner in which the income and capital gains of Trust Estates are taxed in the hands of presently entitled Beneficiaries.

The Case has been the subject of much commentary as it has progressed through the judicial system, some of it unduely alarmist.

Click here to read some informal views about the arguments in the Case.

This Update has now been amended to comment on the Judgment issued on 30 March, barely four weeks after the oral arguments concluded.

The Case does not have any implications for the tax treatment of the Business Insurance Trust Agreement, because the Insurance Proceeds gain an exemption and are not assessable in the hands of the Trustee or the Beneficiaries.

 

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16 November, 2009

Trauma Cover in Super

It seems that the ATO is moving towards acceptance of Trauma Cover in Super from a Sole Purpose test point of view.

Click here to read about the implications of SMSFD 2009/D.

 

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24 July, 2009

Origins of Self-Ownership of Buy/Sell Cover

Self-Ownership is and always has been an appropriate method of holding Personal Cover.

However, most Advisers believe that Self-Ownership is and always has been the only way to hold Buy/Sell Cover as well.

They don't realise that Self-Ownership was a remedy for CGT issues that first arose in 1985.

Click here to read about how and why Self-Ownership replaced Cross-Ownership as the predominant method of ownership of Buy/Sell Cover.

 

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14 July, 2009

Business Insurance Fact-Finding

No issue gives the average Adviser greater grief than Business Insurance Fact-Finding.

However, if Advisers are to rise above the average, service Business Clients better and achieve the potential of the Business Succession market, then they must achieve a competency in Fact-Finding.

You cannot give competent Business Insurance advice, unless you have first completed a competent Fact-Finding process.

Click here to read more about the Fact-Finding process.

 

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13 May, 2009

Post 2009 Budget Update: Paying Insurance Premiums Out of Super Contributions

The desire to obtain maximum advantage out of Concessional Contributions should be greater as a result of the reduced caps on Concessional Contributions introduced in the 2009 Budget.

The reduced caps are a limit on the accumulation potential of the Super Fund.

Subject to the investment return within the Fund, it will now be harder to achieve a targeted capital amount by the date of the Member's retirement.

Obviously, if investment returns suffer (because of events like the Global Financial Crisis), it might be necessary to increase both the total amount and the percentage of Concessional Contributions used for investment purposes.

If a Premium is paid out of Super, it will now represent a greater percentage of the Concessional Contribution that will not be available for the Fund's investment strategy.

If stepped Premiums are used, the percentage will increase over time.

Less and less of the Concessional Contribution will be available for investment.

Ironically, this will occur as the Member is getting closer to retirement age, when Investment Contributions should be increasing.

In the Personal context, this might not be a problem if the need for Personal Insurance has decreased.

However, it might be a problem if the Member:

  • requires Super Buy/Sell Insurance for their Equity in an ongoing Business; or

  • wishes (or is required) to insure ongoing Personal Investment Debt.

Click here to read more about the issues affecting Super Fund Ownership of Insurance Cover.

 

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24 March, 2009

Alternative Methods of Aggregation: Trust Ownership or Self-Ownership?

One of the commercial justifications of Trust Ownership is its suitability as a vehicle for aggregation of Cover onto One Policy (i.e., the One Page, One Policy Strategy).

This Strategy aggregates Cover for multiple purposes onto One Policy instead of holding the Cover on multiple Policies owned by multiple Policy Owners.

Many lawyers who question or oppose the use of Business Insurance Trusts either don't understand them or are simply trying to justify their own historical preference for Self-Ownership.

On the other hand, there have been attempts to use Self-Ownership to mimic this functionality of Trust Ownership (sometimes called a "Hybrid Business Succession Strategy").

These attempts aggregate different Cover onto one policy held by the Life Insured, on the basis that the Life Insured (or their Executor) has a legal obligation to distribute the Insurance Proceeds to the different recipients.

This page examines some of the implications of using Self-Ownership as a method of aggregation.

 

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20 January, 2009

Misunderstanding the Valuation of the Business

In many cases, Business Proprietors have an inflated view of the value of their Equity in the Business.

This impacts on the expectations of their Spouses and Beneficiaries if they die and can cause disputes with the Continuing Proprietors.

While the Life Insured is alive, the income from the Business effectively derives from two sources:

  • the labour of the Life Insured (their salary); and

  • the profit attributable to the investment of capital in the Business (their dividend or profit distribution).

Continued here.

 

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13 January, 2009

Financial Adviser's Duty to Advise with respect to the Tax Implications of an Insurance Policy

Some Advisers and Industry Consultants believe that it is not the role of Financial Advisers to consider or give advice with respect to the tax implications of a Financial Product (such as an Insurance Policy) that they are recommending.

This extends to the method of ownership of the Policy and the tax implications of the method of ownership.

By implication, they are trying to pass responsibility for these decisions on to the Client.

ASIC regards an adequate knowledge of the normal tax implications of a Financial Product (such as an Insurance Policy) as a condition of PS146 compliance.

The method of ownership of a Policy and the tax implications of its ownership are relevant in every case and therefore must be viewed as normal and fundamental aspects of the advice given by a Financial Adviser.

Continued here.

 

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12 January, 2009

Equity vs Loan Capital

Many Clients and Advisers misunderstand the difference between Equity Capital and Loan Capital when they design a Succession Plan.

If a Proprietor has both Equity and a Loan Account, it is important that their Succession Plan facilitates both:

  • the sale and purchase of the Equity; and

  • the repayment of the Loan Account.

A proper understanding of the difference is required in order to structure an effective Succession Plan.

Continued here.

 

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22 September, 2008

"Horses for Courses"

Many Insurance Companies, Advisers and Industry Consultants question whether the IGS Business Insurance Trust Agreement is suitable for all Businesses.

They justify and advocate alternative strategies and structures on the basis of a "Horses for Courses" argument.

One of the most important characteristics of an IGS Business Insurance Trust Agreement is that it is a Facility Agreement.

It is a roof or umbrella over the legal, commercial and insurance arrangements between the Proprietors of a Business.

It recognises that the Proprietors might only have some of the relevant needs at any point in time.

However, it also recognises that these needs might change over time and that the insurance arrangements might need to change as the underlying needs change.

A Succession Plan is a dynamic and ever-changing strategy. It is not a "set and forget strategy".

Continued here.

 

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22 September, 2008

Commercial Debt Forgiveness Issues

Insurance Companies, Advisers and Industry Consultants are starting to recognise the tax issues that affect Debt Reduction Cover.

They have paid a lot of attention to the tax issues that affect Buy/Sell Cover in the past.

These issues have been addressed by Self-Ownership and the IGS Business Insurance Trust Agreement.

However, now it is becoming more obvious to the Insurance Industry that new solutions are required for Debt Reduction Cover as well.

One of the issues is the application of the Commercial Debt Forgiveness provisions to the different methods of ownership of Debt Reduction Cover.

The need to solve these tax issues was a significant motivation in the development of the IGS Business Insurance Trust Agreement.

If the Agreement could solve the issues, then the Adviser and Business could be insulated from the problems.

The IGS Business Insurance Trust structure addresses the CGT and Commercial Debt Forgiveness issues in a commercial and tax-effective manner.

It provides substantial benefits to Businesses that are not available if other methods of ownership or Buy/Sell Agreements are used (for the very reason that they do not recognise or make any attempt to address the issues).

Click here to read more about how the Commercial Debt Forgiveness provisions affect the ownership of Debt Reduction Cover and how they are addressed in the IGS Business Insurance Trust Agreement.

 

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21 July, 2008

Choice of Trustee

As from 18 July, 2008, IGS has discontinued the use of an institutional Trustee Company as the recommended Trustee under Business Insurance Trust Agreements.

This change will avoid the need to involve an institution in a Business Succession Plan and the costs associated with it.

Click here to read more about this change.

 

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21 April, 2008

Simplifying the Valuation Issue

Many business people do not know the value of their Business or find it difficult to reach agreement on the value of their Equity in the Business for insurance purposes.

You can imagine that if it is difficult to reach agreement now, it would be even worse after one Proprietor has died or become disabled.

The One Policy Strategy can help simplify the valuation issue.

Example

Assume that three Proprietors don't know whether their Equity is worth $300K or $500K.

A $200K difference at the time of a death could be quite an emotive and expensive dispute.

However, when a Proprietor is trying to fund a capital sum of $1 million (so that, invested at 5% per annum, it generates living expenses of $50,00 per annum), the issue becomes a choice between:

  • a Purchase Price of $300K and Personal Cover of $700K; and

  • a Purchase Price of $500K and Personal Cover of $500K.

Either way, the total Sum Insured is $1 million. There would be no difference in Premium cost if one option was chosen over the other.

Click here to read more about this Strategy.

 

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10 April, 2008

Who Controls the Insurance Proceeds Under a "Hybrid Business Succession Strategy"?

Many lawyers who question or oppose the use of Business Insurance Trusts either don't understand them or are simply trying to justify their own historical preference for Self-Ownership.

On the other hand, there are also lawyers who recognise the functionality of an Insurance Trust and try to mimic it under the guise of Self-Ownership or a "Hybrid Business Succession Strategy".

Using Trusts to Aggregate

In other areas of practice, these lawyers probably embrace trusts as "aggregators".

After all, trusts are a perfect vehicle to aggregate investors, investors' funds and investment opportunities.

And how many of them advocate Testamentary Trusts?

But when it comes to Insurance Trusts, they sing a different song.

The impetus behind a "Hybrid Business Succession Strategy" is two-fold:

  • Aggregation of cover onto One Policy makes sense to clients; and

  • Self-Ownership means that an Adviser only has to get the Life Insured to sign the Insurance Proposal (whereas Trust Ownership means that the Trustee has to sign the Proposal as the Policy Owner).

Security Concerns

However, it doesn't take long to realise that the Hybrid Strategy not only mimics Trust Ownership, it will ultimately constitute a trust in its own right. Only it is less secure than Trust Ownership.

The trust (and therefore the Insurance Proceeds) is controlled by the Life Insured or someone on their behalf.

The practical concern is that, if you control the trust, you control the Insurance Proceeds.

You only have to look at what would happen in the case of a Death or TPD to understand the practical implications of a Hybrid Strategy.

Click here to read more about the practical concerns with respect to this Strategy.

 

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17 August, 2007

"Hedge and Wedge Strategy"

A "Hedge and Wedge Strategy" is a variation of a Buy/Sell Insurance Strategy.

On the one hand, it is a Business Succession Planning Strategy that uses insurance to "hedge" against the risk that the Purchasers might not be prepared (or able to afford) to pay the Purchase Price of your Equity.

On the other hand, it "pre-agrees" the Purchase Price so that the Owner of the Equity will receive a guaranteed minimum Purchase Price.

In effect, over time, you are "wedging" the Purchase Price of the Equity at a fixed position on the growth curve that represents its value over time.

Click here to read more about how this Strategy works.

 

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17 August, 2007

Sole Proprietors and Family Businesses

The primary focus of Complete Succession is the needs of Businesses that have Multiple Owners.

However, many Businesses owned by one Proprietor, a Husband and Wife Team, or a Family require a Succession Plan as well.

This is particularly applicable to rural businesses (or Agri-Businesses).

Click here to see an overview of how some of the Complete Succession strategies can be adapted to the needs of these Businesses which make an enormous contribution to the economy.

 

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27 June, 2007

Free 20 Minute Teleconference

If a Client is uncertain whether to attend a Client Meeting or use the IGS Documentation Service, IGS offers a free teleconference (of up to 20 minutes) with the Client to explain the purpose and benefits of a Complete Succession Plan and the "One Page, One Policy Strategy".

 

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27 June, 2007

Simple Succession or Complete Succession?

IGS offers a number of alternative Business Succession Agreements on a Fixed Fee basis.

There are two main alternative types of Agreement:

These alternatives give the Business a choice of Agreement, depending on whether it requires a Simple Succession Plan or a Complete Succession Plan.

Click here to read more about the difference between the two types of Succession Plan.

 

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11 May, 2007

Self-Ownership without a Contemporaneous Buy/Sell Agreement: The Effect on "Original Beneficial Ownership"

The concept of "original beneficial ownership" is fundamental to the CGT exemption for Death Benefits.

Most Advisers assume that the exemption will be available for Buy/Sell Cover if the Life Insured is the Policy Owner, whether or not the parties sign a Buy/Sell Agreement.

As a result, some insurance companies estimate that 90% of Buy/Sell Cover is not backed up by a Buy/Sell Agreement.

The High Court has analysed the concept of "beneficial ownership" in a number of land tax cases in recent years.

While these cases are not immediately relevant to the taxation of Insurance Policies, they do contain views that could raise doubts about whether the Life Insured is the "beneficial owner" of the Policy where a Buy/Sell Agreement has not been signed.

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

 

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26 April, 2007

"Geared Premium Funding"

It may be possible to obtain most of the benefits of Super Fund Ownership of Personal Cover by owning the Cover outside the Superannuation environment, borrowing the Premiums and repaying them out of the Member's retirement benefit ("Geared Premium Funding).

This avoids the Premium being paid out of "after-tax dollars".

However, equally importantly, it ensures that there is no tax payable with respect to the Insurance Proceeds (whether or not they are paid to a Dependant).

More information can be found here.

 

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26 April, 2007

Super Fund Ownership

The discussion of Super Fund Ownership will be constantly updated as IGS develops strategies that take advantage of Super Fund Ownership and/or minimise the disadvantages of Super Fund Ownership that are not widely understood by Advisers and Clients.

More information can be found here.

 

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12 April, 2007

A "Business Family Will"

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

In the case of Self-Ownership Buy/Sell Agreements, the person in control of the Insurance Proceeds (and therefore the implementation of the "Business Will") will be the Executor of the Life Insured's Estate (or the Life Insured personally in the case of a Non-Death Benefit).

The Executor is a Trustee appointed by the Life Insured. This means that an appointee of the Life Insured (or the Life Insured personally in the case of a Non-Death Benefit) will have physical control of the Insurance Proceeds.

In the case of a Business Insurance Trust Agreement, the person in control of the Insurance Proceeds will be the Trustee appointed by all of the parties to the business relationship.

This means that physical control of the Insurance Proceeds (and therefore the implementation of the "Business Will") is in the hands of a custodian that has a contractual and fiduciary obligation to comply with the obligations contained in the Trust Agreement.

The Trust Agreement is a "Business Family Will", not just a "Business Will".

More information about the "Business Family Will" can be found here.

 

Copyright: Ian Gray Solicitor

 

 

Adviser Tip

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.

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.