|
You may be able to qualify for all 3 types of insurance.
The use of life insurance in a Business Succession Plan
is an investment decision rather than a life insurance buying decision.
Tragically, many businesses (and the families they support)
are living on a knife edge. Something as common as a heart attack, long
stay in hospital or permanent disablement could destroy everything. Only
by considering what the future may hold and planning for those contingencies
can you be certain that your business will be providing for you and your
family for years to come.
How do I hold the insurance?
Once again this depends on your and the businesses’ unique
requirements. There are three ways you can hold the insurance:
1. Self Ownership
The insurance is paid out to you as the outgoing partner
if you are living, or if you are dead to your family (for example, into
a Testamentary Trust Will). While this appears simple and clean, the tax
office may state that your remaining partners acquired your interest in
the business at no consideration. This means that the remaining partners
may be left with a mammoth capital gains tax bill when they come to sell
or transfer that part of the business they acquired from you.
2. Cross Ownership
If your partner suffers a trauma event or dies (or any
triggering event you decide on) then the insurance is paid to you as the
remaining partner. If you suffer an agreed triggering event then the insurance
is paid to your partner. The potential problem with owning the insurance
this way is that it is difficult to remove or add partners to your business.
Everything has to be restructured each time there is a change in the partnership.
Also trauma is generally subject to Capital Gains Tax.
3. Insurance Trust
If you suffer an "agreed triggering event" then the insurance
proceeds are paid to a trust. The trustees can be your spouse and the remaining
partners. The trustees follow the rules set out in the trust. They transfer
the business and deal with the money. The problem here is that, in the hands
of third parties, Trauma insurance (and sometimes Total & Permanent Disability
insurance) can be subject to Capital Gains Tax.
Taxation, such as Capital Gains Tax and Income Tax, make
getting proper structured advice from your Accountant, Adviser and
Tax Lawyer important.
Where
Do I Go From Here?
Speak with your Adviser about the above insurance policies.
Your Adviser also has a questionnaire to help guide you through some of
the above decisions.
Please have your Lawyer, Accountant or Adviser ring us
on 08 9325 7999 to make a time for you, your Accountant and Adviser to come
into our office. You and your business are unique. Your Business Succession
Plan is tailored to your individual requirements. We discuss your Business
Succession Planning with you in light of what you need and the tax laws.
We charge $440 per hour for the consultation.
Your Adviser or Accountant can complete a Business
Succession Instruction Form and facsimile it to us on 08 9325 5999.
Some of the issues we discuss to develop the plan include:
-
Who owns and runs my business after I am gone: my
remaining partners? my family? our key employees? a competitor? an investor?
-
What do I want to accomplish in the Business Succession
Plan? Perpetuate the business? Transfer the business to the remaining
partners? Get a family member in control?
-
What is the business worth now? What is the business
worth without me?
-
How is the business valued: agree the value now and
index it for inflation, on a formula, or some other way?
-
When and how might I want to move out of the business?
At a particular age? Over time? At a given profit level?
-
What age do I retire? 60? 65? never?
Before we prepare the legal documents necessary for the
Business Succession Plan, we give you a written fixed quote. We fully inform
you before you make your decision.
 Send
this page to a client
|
