Tuesday, April 26, 2022

How many calls must be made?** - Insurance funded buy sell arrangement: 5 key questions

Previous posts have explored various aspects of insurance funded buy sell arrangements

Based on adviser feedback, 5 of the most often asked questions during the planning process for implementing an insurance funded buy sell arrangement – with View’s short form answer – are set out below.

In no particular order, View generally asks for access to the following information before providing recommendations on the optimal way to structure the buy sell legal documentation:
  1. the insurance policies for each principal – why: to ensure the agreements align with the ownership structure of the insurance;
  2. copies of the most recent financial statements for each business entity (including any notes to the statements) – why: there is a material risk that loan accounts are not properly considered as part of the business succession arrangements. Certainly at a minimum, we would recommend that the legal documents specifically regulate how loans are to be treated on the various triggering events;
  3. copies of the trust deeds for each of the trusts involved in the structure – why: many trusts do not permit the entering of buy sell arrangements (due to the rules against fettering of trustee discretion – concept explored in previous View posts);
  4. the most recent ASIC statement (showing all shareholders and directors) for each business entity – why: to ensure the documentation is binding there should be an audit of the structure of shareholdings and directorships as against the records of the statutory authority; and
  5. any existing legal agreements – why: if the existing documents are appropriate our preference is to leave them as is, as opposed to amending simply to ensure they align with View’s approach.
View’s initial review of the material provided is at no cost or obligation and is so that we can ensure we have a proper understanding of the circumstances before suggesting the best way to progress.

All information provided is only retained with authority and is otherwise treated in strict confidence.

As usual, please contact me if you would like access to any of the content mentioned in this post.

** For the trainspotters, the title of today's post is riffed from the Spandau Ballet song 'Only when you leave’.

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