CASE STUDY

Liam and Frank were equal shareholders of their own company. Unfortunately Frank passed away suddenly. As a result Frank’s next of kin wished to claim their inheritance as soon as possible. Equally Liam wished to clear up any business related matters.

Fortunately, Liam and Frank had the foresight to put in place Co-Directors insurance to avoid any problems arising from Probate and Inheritance Tax, etc. Otherwise, the next of kin would have to sell the deceased’s share to an outsider or they would hold on to the shares and exercise their authority in the running of the business.

Upon Frank’s death a lump sum was paid to the business by the insurance company. In conjunction with the Buy / Sell agreement the business purchased Frank’s shareholding from his next of kin, who promptly received the money.

For Capital Gains Purposes, Frank’s share of the business was deemed to be acquired by his next of kin at the market value on date of death. There is no CGT liability because there was no increase in value of the shares from the date of death to date of disposal.

For Inheritance Tax purposes the Revenue treated the proceeds as exempt from Inheritance Tax because the policy was effected purely for commercial purposes and agreed between on an arms length basis without any intention to make a gift.

Key-person Insurance

Key person insurance is designed to help companies protect themselves financially against the effects of the premature and unexpected death of a key member of the business.

With Key person cover, following the death of a leading member of staff a cash sum is paid out to the company to help cover the business costs caused by their death.

for example ... to:

Hire a suitable replacement
Replace the loss of income
Repay loans secured by that person

Cover should be put in place for those with specialised skills or someone the company depends on for its continued success and whose death would adversely effect the business.

What impact would such a death have on the income of your business?

Co-Directors Insurance

Very often, when a shareholder dies the remaining shareholders have to source a large sum of money to buy the deceased’s share of the business.

By having business insurance in place, the funds are immediately available to the other shareholders to purchase the deceased Directors shareholding. This also ensures the deceased’s estate will immediately receive the market value of the Director’s shareholding.

This arrangement ensures that the shares do not have to be sold to an ‘outsider’ at an inappropriate time and that ongoing control of the company can be decided upon before the death of any of the shareholders.

Ensure you will have the money you need, when you need it.