Security & Tax Effectiveness

The One Policy Strategy ensures that each component of the Insurance Proceeds is paid to the intended Recipient securely and tax-effectively by the Policy Owner.

Role of Trustee

The One Policy Strategy requires the Policy Owner to hold each Policy on the terms of a Trust Agreement that requires pre-agreed amounts to be paid to pre-agreed Recipients.

One purpose of the Trustee is to ensure that the different components of the Insurance Proceeds are distributed to the intended Recipients with minimal risk of delay or default.

The Trustee is usually the Business itself or one of the entities within the Business Structure or Group (preferably a company).

See here for more information about the choice of Trustee.

Under the Trust Structure, the Business does not hold the Policy or the Insurance Proceeds for its own benefit.

The Insurance Proceeds are not available to a creditor of the Business while it holds them in its capacity as the Policy Owner or Trustee.

Instead, the Business holds the Insurance Proceeds on the trusts set out in the Trust Agreement and must distribute preagreed amounts to the Recipients nominated in the Agreement.

Ultimate Recipients of Insurance Proceeds

The intended Recipients are not always the Life Insured or their Estate.

They can include other Vendors, the Business, Creditors of the Business and the Continuing Proprietors.

It is important that there be adequate mechanisms to get the Insurance Proceeds securely from the Insurance Company to the intended Recipients.

The insurance and legal arrangements must jointly ensure that "the right money is paid to the right person at the right time".

The process by which this occurs is analogous to a Business Family Will.

If the Insurance Proceeds are simply paid to the Life Insured's Estate or the Business, there is a risk that the Proceeds might not be distributed to the intended Recipients.

It should be remembered that the primary justification for Self-Ownership is the fact that it avoids Capital Gains Tax on the Insurance Proceeds.

However, in many cases, it does so by getting the Insurance Proceeds to the wrong Recipient.

Self-Ownership Agreements

Traditional Self-Ownership Buy/Sell Agreements must pay the Insurance Proceeds to the Life Insured (or their Estate), regardless of whether they are the intended Recipient.

They also fail to deal with the taxation implications of any element of the Succession Plan other than the Purchase Price.

They therefore:

increase the risk that related insurance and payments required by the Succession Plan might not be structured securely or tax-effectively; and
expose Business People and Advisers to disputes and legal proceedings that can be easily avoided by a “One Page, One Policy” Succession Plan driven by a Business Insurance Trust Agreement.

CGT Implications

The Business Insurance Trust Agreement used by Clover Law ensures that the CGT implications with respect to every component of the Policy are adequately addressed by a legal agreement.

Please click here to read about the CGT implications of Trust Ownership.

ATO Ruling

Click here for a summary of the ATO Ruling with respect to the Clover Law Trust Agreement..

Adviser Tip

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.

See more Adviser Tips

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.