If you have a family business, it is wise to carefully plan your Life Insurance as part of your broader succession planning.
What are the benefits ?
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 ?
When planning the distribution of their wealth, some parents want to 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 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.
To prevent family arguments and reduce the risk of your will being challenged, you could consider taking out an appropriate amount of life insurance cover.
In the event of your death;
- The farm or family business could be passed on to one or more of your children, and
- The proceeds from the life insurance policy could be used to provide an asset of equivalent value to your other children.
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 tax agent.
You should ask your registered tax agent to value the farm or family business and 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.
“MLC Protecting business owners Smart strategies guide”