It will never happen to me.... Will it?
Looking at the evidence, you could be
forgiven for assuming that business owners never fall seriously ill or die.
Most companies make sure they have public liability insurance and cover for contents, fi re and theft. And one would expect anyone running a small to medium sized company to recognise that the serious illness or death of a key person would have a potentially devastating eff ect on the business, not least to its value and profi tability.
Yet when it comes to key people, many adopt a high risk strategy by doing absolutely nothing about cover at all.
Without question, the consequences of such inaction are potentially dire. What would happen, for example, if the business owner or major shareholder became seriously ill or died?
Let’s take the case of two shareholders, A and B. They spend all their time in the business and then suddenly, A dies. Who would acquire the shares previously owned by A? Has A made a Will? Would the shares go to A’s spouse, children – or someone else?
Shareholder B could now be in a very diffi cult position. Will B be able to carry on running the company as he or she wants? Who will exercise the voting rights of the shares previously held by A? Even if the person inheriting the shares wants to sell them, could B aff ord to buy?
It could be more bad news for A’s family as well. What if B cannot aff ord to buy the shares – or doesn’t want to? Where does that leave A’s family? They could be ‘locked in’ to a company with no real prospect of any income or other fi nancial support at a time when they need it most.
Given that serious illness, such as cancer or a heart attack, aff ects one in four women and one in fi ve men before retirement
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age, potential scenarios like these are not uncommon. Yet the problems facing A and B could all have been perfectly ironed out if the right safeguards had already been put in place.
Share purchase and partnership protection ensures business succession as well as the safeguarding of commercial interests and family legacy. This protection provides funds to allow remaining business owners to buy the shares of the business from the outgoing or deceased owner. By putting this simple arrangement in place, capital is available to help purchase this person’s interest.
So in the cases of shareholders A and B, with these measures in place, solutions would have been found for both parties by utilising life cover, a business trust, a legal document called a cross option agreement, and structuring Wills correctly.
On A’s death, the shares could pass into a Will Trust, set up for the benefi t of the spouse and other family members. At the same time, the monies payable on A’s death from the life policy could pass into a Business Trust for the benefi t of B and family.
The cross option agreement then allows the shares to pass into the Business Trust and the money moves across into the Will Trust which can then be used to benefi t A’s family.
For A, the Will Trust structure will provide Inheritance Tax savings to be made on the spouse’s death later on, and long term
To advertise in thewire t. 07720 429 613 e.
the.wire@btinternet.com
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