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Business Succession Planning: Need for Asset or Buy/Sell Strategy Need for Liability or Key Person Strategy
Simple Succession Plan:
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One Page Strategy: Simplifying the Valuation Issue
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One Page, Two Policy Strategy:
Other Issues:
Sole Proprietors and Families: Third Party Buy/Sell Strategies Estate Equalisation Strategies
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Debt Reduction Strategies
When are Debt Reduction Strategies Relevant? Debt Reduction Strategies are relevant, if:
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:
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 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).
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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.
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