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Publications and Documents:
Adviser Tips:
Adviser Updates:
Individual Updates (Most Recent First): Adverse ATO Advice on Super Buy/Sell Cover Partnership and Trust Loan Accounts Effect of Debt Reduction Cover on Buy/Sell Cover Tax Treatment of Self-Ownership Agreements Vested and Indefeasible Interest Simplifying the Valuation Issue Simple or Complete Succession?
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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.
Reasons for Change Since the introduction of the Financial Services Reform Legislation, Trustee Companies have been subject to increasingly high regulation and the cost of supplying Trustee Services to retail clients has increased substantially. The Trustee's Fee Structure was designed to fund the bulk of the cost of administering the Scheme out of the Trustee's Fees payable upon a claim. However, because most Lives Insured have satisfied medical and underwriting requirements at the time of signing their Agreement, the rate of claim has been relatively low. (Of course, this is reassuring to the Clients themselves!) To continue to provide the existing Trustee Services, the Trustee Company considered that it would have been necessary to increase the Trustee's Fees by up to 400%. IGS considered that the increased cost of the institutional Trustee Company would have outweighed the benefit of an institutional Trustee Company .
Future Trustee Arrangements Click here to read about the current choice of Trustee available to a Business. In the case of a One Page, One Policy Succession Plan, the Trustee will usually be the Business itself or one of the entities within the Business Structure or Group (preferably a company). Alternatively, the Business can adopt a Hybrid or One Page, Two Policy Succession Plan. Both options provide legal, tax and commercial benefits that are not available if the Business utilises Self-Ownership, Cross-Ownership or a Hybrid Succession Strategy that does not use a Trust Structure. Legal Fee The same Legal Fee applies to both types of Agreement.
Security Implications 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. The Trust Agreement is effectively a list of directions by the Beneficial Owner of the Policy to the Trustee to pay fixed amounts to Nominated Recipients. There is no discretion in the Trustee to change the amounts of the payments or the identity of the Recipients of the Insurance Proceeds. The Trustee has a contractual obligation to make these payments as well as a fiduciary duty to pay them on behalf of the Beneficiary. If there was a default by the Trustee, the Beneficiary (usually the Life Insured or their Estate) would be entitled to seek enforcement of the Trustee’s contractual and fiduciary obligations by a mandatory injunction. Pending payment of the Pre-agreed Sale Price to the Vendors, the Purchasers would not be able to obtain a transfer of any Equity in the Business that was supposed to be paid to them. There are also Powers of Attorney that allow an Aggrieved Party to remedy a breach as the Attorney of the Defaulting Party. There is a mutuality of promises that would minimise the risk of default. Ultimately, the Trust Structure still provides greater security than the traditional alternatives of Self-Ownership and Cross-Ownership. It is still the most appropriate vehicle for a One Page, One Policy Succession Plan.
Transitional Arrangements The institutional Trustee Company will not sign any new Proposals for new or increased Cover as from 18 July, 2008. It will honour current Agreements, provided that there are no changes to the parties to the Agreement, the Policies or the Sums Insured (other than CPI increases). Where a Business has created a One Page, One Policy Succession Plan, it will continue to be able to change the mix or colour of the existing Cover. However, if it is necessary to terminate Cover or obtain new or additional Cover, the Trustee Company will resign as Trustee in favour of the replacement Trustee nominated by the Business.
New or Additional Cover Advisers should note that, if the Business needs additional Cover:
The Insurance Company will usually require the transfer to be completed, before it can process the new application. As soon as the Business changes the Trustee of its Policies, it will no longer need to allocate any of the Sum Insured to the payment of a Trustee's Fee payable on a claim. This component of the Sum Insured will become available for other needs of the Business or the Life Insured.
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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.
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.
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