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 $374 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.
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