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Momentum Business Will

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  • 1. Succession Planning Your Business’ Will Prepared by: Graeme Horsley Senate Group 27 June 2014
  • 2. Needs analysed: a structured portfolio Buy & Sell Agreement
  • 3. Succession Planning • Large part of Estate Planning • Succession Planning includes:  Personal Planning o Planning for the division of the personal estate after death o Provision for estate administration costs and settlement of debts upon death o Ensure that there is sufficient liquidity o Provision for dependants and beneficiaries  Business Planning o Protection of business assets o Continuity of businesses o Securing the future of employees
  • 4. The most vital tool in succession planning is your will Your business also needs a will to ensure smooth continuity
  • 5. Importance of a business will • Who will take over the shares of the deceased owner ?  An inexperienced heir?  A competitor?  A speculator? • Will the dependents get a fair price for the shares?  What is the impact of the death of the shareholder on the value of the business?  How will the business be valued  Fire Sale  Is creditworthiness affected? • Will there be sufficient funds to purchase the shares?  Will the surviving owners be able to afford the shares?
  • 6. Importance of a business will • Will there be sufficient income during liquidation?  How will the income of the beneficiaries be influenced by the liquidation of the business?  Will the business be able to sustain its employees during this time?  Will the estate be delayed due to the process of finding a buyer or liquidating the business? • WILL the surviving owners have sufficient capital to start again? • WILL the beneficiaries be forced to sell personal assets to support the business or to supplement their income?
  • 7. Business Will • It is an agreement:  Between the shareholders/members/partners of a business entity  Obliges them to sell their interest on their death/disability to the survivors and  Obliges the survivors to purchase the interest from the deceased estate • Funding of the agreement is essential • What separates B & S from MOI and Shareholders agreements
  • 8. How does it mitigate the risks? • The Agreement provides for:  An acceptable buyer o The surviving members will purchase the deceased’s interest o Protects their business interests o Prevents unwanted outside influence  At an acceptable price o Purchase price or Valuation method is predetermined  With sufficient cash o No need to raise capital o Funds are readily available o Dependents have capital to invest for income
  • 9. Tax Implications • Income Tax  No income tax relief on premiums paid by shareholder  The proceeds are received tax-free • Estate Duty  If structured correctly it will not add to your estate duty concerns  3 “P”  At time of death must be “Partners”  “Purpose” of the policy is to buy each other out  Sometimes the partners over insure and elect to keep the “change”  Life assured must not pay “Premiums” on his own life
  • 10. Other interesting points • What if the shareholder is the only shareholder?  Can enter into a buy and sell arrangement even if all the parties are not co-shareholders ex. An employee  May be tax implications that must provide for • What happens if the business is terminated?  Cede the policies back to the life insured • Preferably only insure for death and disability • If you can’t make sure the agreement is adjusted • Off the shelf agreements can cause problems • Sometimes tired benefits are unavoidable • Terminal illness benefits • Partner with someone who can provide unique agreements
  • 11. Other mistakes that lead to opportunities • An unsigned agreement or no agreement • Shareholders agreement or the MOI contradicts this agreement • Important since the New Companies Act has been enacted • The policies are in place but owned by the business or have beneficiary nominations • Premiums are claimed as a tax deduction • Client will have to resubmit tax returns • Penalties • Company pays premiums and not accounted for properly • Estate Duty Implication • Shares are over/under-valued and the policies’ values are incorrect • How does the buyer fund the shortfalls • Donations Tax • What value will the executor use to calculate CGT and Estate Duty
  • 12. Death of the Shareholder Parties A B and C equal shareholders in the business owning life assurance in proportion to the respective shareholding
  • 13. Death of the Shareholder Party C dies /becomes disabled and exits the business
  • 14. Death of the Shareholder Party A and B become the new equal shareholders in the business Increase cover (now 50:50)
  • 15. Any Questions???