Strategies in funding business succession
Business Succession Update – Spring 2013
Many advisors are unaware that adopting a self-funded insurance approach can allow access to complementary estate planning strategies such as:
(a) Structuring the Wills of the business partners so that no capital gains tax or stamp duty is payable on the actual transfer of the business interests once the buy-sell agreement comes into effect;
(b) Incorporating testamentary trusts into the Wills of each partner to ensure that the proceeds are retained in a protected and tax-effective environment for the partner’s immediate family;
(c) Structuring the policy ownership via superannuation funds. This form of self-ownership has its own issues.
Secondly, having insurance trust arrangements (commonly referred to as the hybrid approach) can also assist by providing for excess insurance proceeds to be distributed to the continuing principals for the purpose of repaying business debt and then having any excess component of the insurance proceeds thereafter kept by the sufferer of the triggering event (or their estate) to apply for any purpose.
The benefit of having the hybrid arrangement is that there are no tax implications on the receipt of the insurance proceeds by the continuing partner, unlike where traditional key person insurance is obtained which is often fully taxable upon receipt.