Partnership Insurance Plans
What is Business Partner Insurance ?
The purpose of Business Partner Insurance is to provide funds, on death or serious illness of any business partner, to his/her sharing holding thus ensuring:
- Continuity and prosperity of the business in the event of death or serious illness of a business partner.
- Security for all the Business Partners.
- Protection for dependants of all the Business Partners.
The Business Partners Plan is a cost effective arrangement, which will provide:
- The Right money
- In the Right hands
- At the Right time
Method and Procedure
The most flexible approach to Business Partners Protection Plans is called "Own Life in Trust".
Here each Business Partner effects cover on his/her own life, for an amount equal to the value of his/her own shareholding. The death/serious illness benefit is placed in trust and payable to the surviving Business Partners should he/she predecease them whilst still a party to the arrangement. This enables the surviving Business Partners to purchase the shares in the event of death or serious illness of a fellow Business Partner.
This method is ideal for accommodating changes in shareholdings and facilitating new entrants and exits from the arrangement.
Documenting the Plan
To ensure that the proceeds to be used to pay for the shareholding of the Business Partner who has died or suffered serious illness are free from Capital Acquisitions Tax, it is essential to show that a “Commercial Arms Length Agreement” has been made that the plan is properly documented.
Documentation in accordance with Revenue Guidelines will be provided which will ensure that the proceeds to be used to purchase the shareholding of a deceased Business Partner or one who has suffered a serious illness are free from Capital Acquisitions Tax in the hands of surviving Business Partners.
Each Business Partner completes:
- Life Insurance Proposal
This is completed by each Business Partner and forms the basis of the contract of insurance.
- Flexible Trust
The trust is the method by which one Business Partner passes the proceeds of his/her insurance policy to the other Business Partners.
Legal ownership passes to appointed Trustees who are charged with carrying out the wishes of the donor. The beneficiary clause defines the circumstances within which the benefits will pass.
- Reciprocal Agreement
The Reciprocal Agreement establishes that each Business Partner pays their premiums as part of an "Arm's Length" bargain and not with any intention of a gift.
All Business Partners complete:
- Double Option Agreement
Simply an agreement signed by all the parties to either buy or sell shares on the death or serious illness of any one of the Business Partners. Once either party enforces the other party must comply.
Note: All of the documentation will be provided for each individual plan.
Taxation and Revenue Guidelines
Where a business partner's plan is written in the form of own life in trust for other, the proceeds of such policies taken by the surviving shareholder(s) will be exempt from inheritance tax/gift tax in the following circumstances:
- Proceeds on death and serious illness must be used to purchase the deceased's shareholding. Any surplus arising will be liable to gift/inheritance tax.
- The capital sum under each policy will reflect the policyholder's shareholding.
- Payment of premiums will be made by the individual member's or on their behalf by thru company or partnership.
- New business partner who can joint the protection plan at any time, subject to the conditions applicable to the existing members of the plan.
- On withdrawal from the company or on retirement, the policy of the business partner who leaves will revert to him/herself and he/she will no longer benefit in the continuing arrangement.
- On the death of a sole surviving business partner the policy on his/her life will be an asset in his/her estate and will not be exempt from inheritance tax.
- Similarly, if a partnership breaks up or a company is wound up, policies that are not surrendered or lapsed will on a death revert to the insured's estate.
- Where a business partner refuses to join the arrangement or is unable to effect life insurance on medical grounds, then he/she will be precluded from benefiting from the polices of his/her co-shareholders.
- As only the death benefit passes to the surviving business partners, the insurance policies can be either term insurance or whole of life (with profit or unit linked).
- Business partners protection insurance using own life in trust must be supported by relevant documentation:
- Flexible trust document.
- Reciprocal agreement.
- Buy/sell (or double option) agreement.
Note: The revenue has confirmed that these guidelines extend also to serious illness benefits.