brian hosford - lia.ie · brian hosford. jargon. purpose. shareholders operations family /...
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Business ProtectionWhat’s it all about?
Brian Hosford
Jargon
Purpose
Shareholders
Operations
Family / Dependants
Protect the Business
Ask the relevant questions
Discuss the relevant solutions
Plan for the relevant risk
Relevance
Partnership Insurance
Co-Directors’ (Shareholders’) Insurance
Individual
Corporate
KeyPerson Insurance
Simplicity
Buy & Sell Agreement
Arranging Cover
Own Life in Trust
Life of Another
Premiums
Taxation
Partnership / Director Cover
Partnership Cover
JTS & CoValue €3m
33.33%€1m
33.33%€1m
33.33%€1m
Partnership / Director Cover
Cover required = €3m
€1m per Partner / Director
Own Life in Trust
Partnership / Director Cover
Partnership Cover
Tom
€1m
Jim
€1m
Sean
€1m
€1m CoverIn Trust forSean & Tom
€1m CoverIn Trust forSean & Jim
€1m CoverIn Trust forJim & Tom
Partnership / Director Cover
Tom
Jim
Sean
Dies
€500K
€500K
Partnership CoverPartnership / Director Cover
Tom
Jim
Sean’s
Estate
€500K
€500K
Partnership CoverPartnership / Director Cover
JTS & CoValue €3m
50%€1.5M
50%€1.5M
Partnership CoverPartnership / Director Cover
Life of Another
Manageable for 2/3 Lives
Own Life in Trust
Less complex for 4+ Lives
Type of Cover
Partner / Director AOwn Life Cover
Partner / Director BOwn Life Cover
Partner / Director COwn Life Cover
Partner / Director DOwn Life Cover
In Trust for B, C & D
•Simple arrangement
•Funds end up in the right hands
•Not a “correct” distribution of cost
•Flexible – easy to add partners/directors
Own Life in Trust
In Trust for A, C & D
In Trust for A, B & D In Trust for A, B & C
Partner / Director A
Life Cover on B Life Cover on C Life Cover on D
Partner / Director B
Life Cover on A Life Cover on C Life Cover on D
Partner / Director C Partner / Director D
Life Cover on CLife Cover on BLife Cover on ALife Cover on DLife Cover on BLife Cover on A
•A large number of policies required
•Funds end up in the right hands
•“Correct” Distribution of cost
•Inflexible when adding a new life
Life of Another
Partnership Act 1890If NO other specific agreementPartnership dissolved on death of partnerDeceased partner’s share is debt due
Partnership AgreementWrittenConduct of the businessObligations on death of partner?
Goodwill
Partnership – The Specifics
Agreement – On Death, Pay Back :Capital invested in the business
Share of assets
Undrawn profits
Goodwill (not automatic accrual)
Specific Payment DuePartnership InsuranceBuy & Sell Agreement
Partnership – The Specifics
Paying the PremiumsPersonal ArrangementPartnership pays premiums = Draw DownNo tax advantage to partner or practice
GoodwillSelf InsureRetirement Annuity Contract (Tax Relief)
Ill HealthPersonal Income Protection PolicyCompletes the tax efficient cover
Partnership – The Specifics
Articles of Association
Quantifying the Initial CoverValuing the Business
Profits
Assets
Regular Revaluations
Co-Directors’ – The Specifics
Common Threads
Succession Planning
Principals’ Control of Business Retained
Business Continuity
Protection of Family / Dependants
Framework / Capital for Buy & Sell
Buy & Sell Agreement
Compels Surviving Partners/DirectorsBuy Share of Business
Compels Principal’s DependantsSell Share of Business
Paying the Premium
Arrangement is personal
Company / Partnership Pays PremiumsTreated as income
No tax advantage forDirector / Partner
Company / Partnership
Corporate Co-Directors’ Cover
How does it work?Similar to Co-Directors Insurance BUT DifferentCompany effects insurance ANDBuys Back Company Shares on Death of Director
What is the structureCompany effects Contingent Purchase Order with each Director(Buy & Sell Agreement)Company Pays Premiums
Any Special Considerations?Power of Company to Buy Back Own SharesTaxation Treatment of Buy Back
Corporate Co-Directors’ Cover
ABCD Ltd Issued Shares €12m
Director BShares €3m
Director DShares €3m
Director CShares €3m
Director AShares €3m
Corporate Co-Directors’ Cover
ABCD Ltd Issued Shares €12m
Director BShares €3m
Director DShares €3m
Director CShares €3m
Director ADeceased
€3m Shares Cancelled
€3m to Director A’s
Estate
Corporate Co-Directors’ Cover
ABCD Ltd Issued Shares €12m
Director BShares €4m
Director DShares €4m
Director CShares €4m
Does it suit every company?NO
Family owned companies do not always fit the billIf a parent intends passing on the company to son/daughterIf all shares are held by the parent
BUTIf some shares are held by son/daughterParent and/or other childrenMight want to consider
Corporate Co-Directors’ Cover
KeyPerson Insurance
What and Why?
Procedures
Taxation
Family Companies
What is KeyPerson Insurance?Safeguards CompanyPotential Financial ImpactDeath or Critical Illness of a Key Employee or Director
Why is it Needed?Repayment of Loans Loss of Profits Loss of ConfidenceLoss of Management ExperienceRecruitment Costs
KeyPerson Insurance
ProceduresBoard Resolution
Company proposes for policy
Life of Another
Company Pays Premiums
Keyperson No Personal Interest
KeyPerson – The Mechanics
TaxationPremiums Tax Deductible - Strict Revenue Criteria
If Premiums NOT Tax Deductible
Benefit Generally Treated as Capital Receipt
BUT Depends on
Repay Loans or Replace Profits
Each Case is Different
KeyPerson – The Mechanics
GeneralSeparate Policies for Separate Purposes
Defined Term on Cover
Family Companies
Is Cover to Benefit Family or Company?
Personal Cover More Appropriate?
KeyPerson – The Mechanics
Sample Report LibraryPartnership Report
Co-Director Report
Corporate Co-Director Report
KeyPerson Report
Directors' Buy And Sell Agreement
Partners' Buy And Sell Agreement
Corporate Buy And Sell Agreement
Declaration of Trust
Business Protection
Executive Income Protection
Executive Term Insurance
Linked To Pension?
Group Protection
Often Opportunities
What Else