Posted by: Tom Wood | Date: 14 May 2013
I recently read an article which highlighted the potential benefits for clients using their Self Managed Superannuation Fund (SMSF) to fund their buy/sell agreement (also commonly referred to as a Business Will).
The concept is simple. Instead of each business owner effecting an insurance policy on their own life, for a Business Will the policies are owned by the trustees of the superannuation fund.
However whilst the concept is simple, there are a number of pros and cons of SMSF-owned insurance funding (which need to be considered on case by case basis) before proceeding down this path.
This article highlights the advantages and disadvantages as listed below:
From a legal perspective, the main issue I see is the need for regular review of the Business Will. This requires an ongoing commitment from each business owner to regularly review the Business Will and update it, if required.
There is also the fact that the value of the business could change over time and create a shortfall in the insurance levels. This would require careful consideration by the business owners on what is to happen and how and when any shortfall is to be paid.
It is important that the SMSF deed is thoroughly reviewed and appropriate measures are in place to cover non-death trigger events such as trauma and TPD.
These issues need to be carefully considered and compared with the obvious tax advantages. It is also critical for all clients to obtain the professional advice of a qualified accountant before implementing any insurance policies owned by their SMSF.
If you are considering structuring your Business Will through your Self Managed Superannuation Fund, it is important to obtain the correct legal advice.
Please do not hesitate to contact me if you would like to discuss this further.