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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


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


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


Family Ownership

Sale Strategies

Third Party Buy/Sell Strategies

Estate Equalisation Strategies

Family Buy/Sell Strategies

Second Generation Strategies

Debt Reduction Strategies




Debt Reduction Strategies


When are Debt Reduction Strategies Relevant?

Debt Reduction Strategies are relevant, if:

  • the Business has significant debts; or

  • any of the children (the Second Generation) have borrowed funds in order to acquire an Equity in the Business from their parents.


Family Business Debt Reduction Strategies

Often Family Businesses or Rural Properties can be encumbered by significant levels of debt.

It might be prudent to insure this debt, so that the burden on the Business, the children and any other assets in the Estate that form part of the security for the debt can be extinguished or reduced.

This strategy would allow:

  • the First Generation to extinguish its Debt; and

  • the Second Generation to start with a clean balance sheet.

Debt Reduction Cover could be obtained with respect to any person involved in the Business (including the parents and the children).


Substitute Loan Accounts

A Business Insurance Trust Agreement can be used to establish tax-effective loan account structures that enable the Debtor entity to borrow the Insurance Proceeds from some or all of the children in order to repay the external Creditor.

Click here to read about Substitute Loan Accounts.


Insurance with respect to Purchase Price Loan or Vendor Finance

Occasionally, some of the children borrow funds from a Bank to purchase their parent's Equity in the Business.

Alternatively, they might fund the Purchase Price under a Vendor Finance arrangement.


Insuring the Parent for the Child's Debt to the Parent or Creditor

In these cases , the children could insure the parent, so that the loan (or the balance of the Purchase Price) could be paid out of the Insurance Proceeds payable on the death of the parent.

In the case of Vendor Finance owing to the parent, this would mean that:

  • the Vendor Finance arrangements could be satisfied or finalised at the time of the parent's death; and

  • no funds would remain owing by the Purchasers to the Estate or the Beneficiaries of the Estate.

The payment of the outstanding Purchase Price would contribute cash to the Estate, which could help address Estate Equalisation issues.

It would also ensure that there were no ongoing loans between the children.


Insuring the Child for the Child's Debt to the Parent or Creditor

Obviously, it would also be appropriate to insure each child with respect to their share of the Loan or the balance of the Purchase Price (from a Personal Estate Planning point of view).



Copyright: Clover Law Pty Ltd



Adviser Tip

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.

See more Adviser Tips


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