|
|
Welcome: Site Map: Adviser Updates: Publications and Documents:
Business Succession Planning: Need for Asset or Buy/Sell Strategy Need for Liability or Key Person Strategy
Simple Succession Plan:
Complete Succession Plan:
One Page Strategy: Simplifying the Valuation Issue
Multiple Policy Approach:
One Page, Two Policy Strategy:
Other Issues:
Sole Proprietors and Families: Third Party Buy/Sell Strategies |
The “One Policy Strategy”
Traditional “Multiple Policy Approach” Traditionally, Advisers have written one Policy for each separate Need (the "Multiple Policy Approach"). This often results in three, four or five different Policies for each Life Insured, usually in the name of different Policy Owners. These arrangements are often difficult to understand, manage and review. They usually require Policy changes, medical tests and valuations each time one of the Life Insured’s needs changes.
Tax Implications of Policy Ownership Equally importantly, the ownership of the Policies determines the Income Tax and Capital Gains Tax liability of the Insurance Proceeds. Often what seems like a sensible commercial method of ownership will result in a tax liability for a Death or Non-Death Benefit. See here for a more detailed analysis of the tax implications of Policy Ownership.
One Policy Strategy The One Policy Strategy is designed to deal with these issues more simply, tax-effectively and cost-effectively. The “One Policy Strategy” aggregates Asset, Liability and Personal Needs onto one Insurance Policy with respect to each Life Insured or Proprietor. The result is One Policy per Life Insured. 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 allocation or "mix" or "colour" of the cover. Click here to read about the commercial and strategic implications of a One Policy Strategy.
Trust Ownership Structure The “One Policy Strategy” uses a simple Trust Ownership structure to aggregate Asset, Liability and Personal Needs onto one Insurance Policy with respect to each Life Insured or Proprietor. The tax implications of Trust Ownership are discussed here. Click here to read about the Clover Law Business Insurance Trust Agreement.
Complete Succession One Policy Worksheet Click here to see a Risk Analysis Worksheet completed for a Complete Succession Plan held on One Policy pursuant to the terms of a Business Insurance Trust Agreement.
Sole Proprietors While originally designed for Multiple Proprietor Businesses, the Strategy also allows individual Lives Insured and Sole Proprietors to aggregate Personal Cover (some of which might be beneficially owned by the Life Insured and the rest by a Self-Managed Superannuation Fund) onto the one Policy. Click here for strategies for Sole Proprietors and Family Businesses.
Dual Role of Personal Cover Click here to see how your Personal Cover can create a "warehouse" or "comfort zone" for future growth of the Sale Price of your Equity in the Business. In a sense, a One Policy Strategy helps you realise that your "Green Cover" can be "Future Blue Cover".
Use of Existing Cover if Life Insured Has Health Issues One or more existing Self-Owned Policies can be transferred or “parked” under the roof of the Trust, if there are health issues with respect to any of the Lives Insured. For example, a Life Insured might retain an existing Policy for part of their needs, because the premium with respect to any new cover might be more expensive. The Life Insured's needs might therefore be met by a combination of Policies, which are effectively "pooled" by the Agreement. If the Policy is transferred to the Trustee by the Life Insured, the Life Insured continues to be the “original beneficial owner” of the Policy for CGT purposes (so that the transfer does not have any adverse CGT implications). Simplifying the Valuation IssueClick here to see how the One Policy Strategy simplifies issues with respect to the valuation of the Business and the determination of each Proprietor's Purchase Price. Pre-agreeing the Purchase PriceClick here to read about the ability to avoid valuation disputes by pre-agreeing the Purchase Price.
Any Number of Needs It is not necessary for each Business Person to have all of the Needs in order to derive a benefit from the One Page, One Policy Strategy. The Strategy will benefit most Business People who have any two or more of the Needs.
“One Page, Two Policy Strategy” If the Lives Insured wish to place some of the cover in a Public Offer Super Fund in order to obtain a tax deduction, it is possible to design a “One Page, Two Policy Strategy”. This Strategy requires a Hybrid or Multiple Policy-Owner Agreement. Disadvantages of Super Fund Ownership Click here for an analysis of the disadvantages of Super Fund Ownership. The "Geared Premium Funding" Alternative Please see here for an alternative cash flow strategy ("Geared Premium Funding"), which is designed to overcome most (if not all) of the disadvantages of Super Fund Ownership (in particular, the potential taxation of the Insurance Proceeds in the hands of the Super Fund or the Beneficiaries).
Sole Proprietors and Family Businesses Buy/Sell or Equity Insurance is most relevant to Multiple Proprietor Businesses in which there are arms-length Proprietors or Owners. However, it can also be relevant to Sole Proprietor and Family Businesses. Click here for strategies for Sole Proprietors and Family Businesses.
|
Adviser Tip 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.
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. |
