If you have accumulated wealth and assets along your journey through life and or a family business, it is wise to treat your beneficiaries equitably and carefully plan your exit, and your life insurance as part of your broader succession planning, so as not to leave a trail of conflict that could have been avoided.
What are the benefits to you and your beneficiaries?
By using this strategy, you could:
Provide additional funds to equalize and ensure your beneficiaries receive sufficient assets to achieve your estate planning objectives.
How does the strategy work to distribute to your beneficiaries equitably?
When planning the distribution of their wealth, some parents want to their assets and or leave the family business to one or more of their children.
💡 But problems could arise if you cater for certain children in this way and it hasn’t been discussed and agreed upon prior to your departure. Your other children feel they have not been treated fairly.
Your will could be contested and, if the challenge is successful, the business or other assets may need to be sold to distribute the proceeds, often with an accompanying Capital Gains Tax (CGT) bill. Not to mention, angst between the beneficiaries.
To prevent family arguments and bad energy between the beneficiaries, as well as, reduce the risk of your will being challenged, you could consider taking out an appropriate amount of life insurance cover to mitigate this.
In the event of your death;
- The farm, your family business and assets could be passed on to one or more of your children, or other beneficiaries and
- The proceeds from the life insurance policy could be used to provide an asset of equivalent value to your other children or beneficiaries.
💡 Because the law can vary in each state, you should seek professional legal advice before using this strategy.
The taxation consequences of estate planning are complicated and it is recommended that you also seek professional advice from a registered financial tax agent. *(of which I am one.)
You should also ask registered tax agent to value the farm or family business and it’s assets to determine how much CGT would be payable if the asset was to be sold by the beneficiaries who inherit it.
This will help you determine how much life insurance cover you should take out to equalize your estate and treat your beneficiaries equitably.
I can help you examine the value of your life insurance and your estate matters in the event of your death here
Protecting your income is another way of protecting your assets.
By protecting your income you could:
- Receive pre-tax income if you are unable to work due to illness or injury, and not rely on or consume your savings, as well as,
- Ensure that business resources do not have to be used to fund you while you are unable to contribute to the business due to illness or injury.
As is protecting your business ownership
Essentially, a Buy-Sell agreement is an asset saving arrangement that can be entered into as it is a legal contract between business owners to protect the business and ensure an orderly transfer of ownership or preventing other potential problems that could occur if a business owner dies or becomes disabled and is unable to work in the business again.
⚠️ There are many complex components to consider when planning the distribution of your wealth, and your assets, or leaving the family business. It takes planning and careful consideration, as well as making sure your that your wealth is fully protected and in a tax-effective structure for your beneficiaries.
Need Help?
If you need more information or help to implement this strategy for your life insurance, asset distribution, protecting your business ownership and to implement this strategy for your business and wealth protection, contact us today on 08 7111 0022. or book a chat here
Arthur Panagis
Author, Founder, Wealth Coach and Financial Strategist
B.Bus (Accountant)
Grad Dip (Financial Planning)
Professional Certificate in Self Managed Super Funds
ASX Listed Equities Accreditation
Tax (financial) Advisor
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We want to make the rest of your life, (as well as your transition,) the best of your life.
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