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Estate Planning

Make sure you have your business will in place

Over the last few months, WLM has held a lot of Annual General Meeting (AGM’s) with our business clients. The purpose of the AGM is to get the client, WLM accountant and financial planner in the same room to review business cashflow and profitability for the last 12 months, forecast cashflow for the next 12 months and see how the business owner can look to transfer retained profits out of the business into their personal name in a tax effective manner. Having your Accountant and Financial Planner in the same room, discussing your business and personal needs is part of our ‘Wealth Oneness’ approach!

An important part of this meeting is Estate Planning – how do you transfer your ownership in your business to your loved ones if something happens to you? This is especially important if your business has 2 or more partners.

We manage this problem through setting up a Buy/Sell agreement

Buy/Sell agreements are sometimes likened to a ‘business will’ as they can help minimise the risk of: 

  • Remaining owners needing to sell the business or to take out additional borrowings to pay out the departing owner or their estate
  • Assets being frozen due to legal issues created by the departing owner, their family or estate
  • A departing owner’s family deciding to become an active business partner, against the wishes of the continuing partners
  • The departing owner’s spouse or family taking up their legal right to claim business profits without working in the business
  • A departing owner’s spouse or estate selling their share to an unsatisfactory third party
How do we manage this risk? Through Buy/Sell insurance!

Buy/Sell insurance pays a lump sum that ensures the remaining owners can acquire the departing owner’s equity, and continue to run the business. It also enables agreed compensation for the share held by the departing owner or their estate.

An important element of the Buy/Sell agreement process is reaching consensus on how the business is valued. Current market value is commonly used, and should be updated regularly. Other valuation methods are indexing the value to inflation, or to the expected business growth rate. As insurance premiums will vary due to differing age, health and other underwriting requirements, it is important to determine how premiums will be paid, and the most appropriate way of sharing costs.

How can WLM help?

At WLM, we are experienced at implementing Buy/Sell insurance for our clients. We will help:

  1. Work with business valuation experts to identify the most suitable valuation methodology for your business based on industry and other unique factors.
  2. Find the most suitable insurance provider and apply for the required amount of Buy/Sell insurance based on the business valuation.
  3. Work with lawyers to ensure the legal document required to establish the Buy/Sell agreement accurately reflects the business owners intended outcomes should one of their fellow equity holders die or become permanently incapacitated.

If you are a business with multiple owners, please contact us so we can discuss your Buy/Sell insurance needs.

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