Review for Accountants & Financial Planners
June, 2016

The 'forced' arrangement

Two minute scenarios...

Your clients are in business together. You approach them to discuss their business succession plan...

Scenario One... Daniel, Julia, and Chris

Scenario: These clients own equal shares in a successful business. They do not have a formal business succession plan, however, they all have Wills, and have left everything to their spouses.

What's the issue? You ask whether everyone is happy with potentially having a new business partner 'forced' on them. You explain that if one of them dies, the others will be forced to accept a new partner they have probably not chosen i.e., the beneficiary who inherits the equity.  

Solutions: You offer to develop a business succession plan for them, one that allows them to choose their new business partner - usually the remaining partners. After all, that's who they chose in the first place!

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Scenario Two... no Wills? Now what?

Scenario: Actually, Daniel and Chris don't have Wills.

What's the issue? If they die without a Will, their estate assets may be shared between their spouse and children. Intestacy laws differ by state, but there is the risk that their surviving business partners will end up dealing not only with their spouse, but also their children.

Solutions: The clients need a formal business succession plan developed, to provide an acceptable solution for all of the business partners. With a Buy Sell agreement in place, with insurance funding it, all parties will have their needs looked after. And of course, they all need Wills.

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Scenario Three... but I'm leaving it to my son!

Scenario: Your planning process uncovers the fact that Chris wants to leave his share in the business to his eldest child.

What's the issue? That's news to Julia and Daniel. They feel trapped. If Chris dies, can they be forced to accept his son as their new partner? Yes, they can. Unfortunately this is something not often appreciated by many business clients.

Solutions: They need to start talking. If Chris does not acknowledge his business partners' wishes by participating in the Buy Sell agreement, they can proceed and organise one between the two of them.

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More information for clients

Please feel free to forward this insight on Buy Sell Agreements to your clients. Or if they would like to discuss how we can help them please call 03 8621 9000 or email with their details and we will contact them, obligation free.

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