Choice of Trustee

Choice of Trustee

The Business has a choice of Trust Agreement based on whether all of the Policies are owned by:

one Policy Owner (such as the Company itself) (a "One Page, One Policy Succession Plan"); or

a Hybrid of a Trustee (such as the Company itself) and Self-Ownership and/or Super Fund Ownership and/or ownership by a Related Party of the Life Insured (a "One Page, Two Policy Succession Plan").

Role of Trustee

One Page, One Policy Succession Plan

The One Policy Strategy requires the Policy Owner to hold each Policy on the terms of a Trust Agreement that requires pre-agreed amounts to be paid to pre-agreed Recipients.

One purpose of the Trustee is to ensure that the different components of the Insurance Proceeds are distributed to the intended Recipients with minimal risk of delay or default.

The Trustee is usually the Business itself or one of the entities within the Business Structure or Group (preferably a company).

Under the Trust Structure, the Business does not hold the Policy or the Insurance Proceeds for its own benefit.

The Insurance Proceeds are not available to a creditor of the Business, while it holds them in its capacity as the Policy Owner or Trustee.

Instead, the Business holds the Insurance Proceeds on the trusts set out in the Trust Agreement and must distribute preagreed amounts to the Recipients nominated in the Agreement.

One Page, Two Policy Succession Plan

If the Business chooses a One Page, Two Policy Succession Plan, the above analysis will apply equally to any Policies held by a Policy Owner as a Trustee on the terms of the trust set out in the Trust Agreement.

Insolvency of Business or Trustee

In the unlikely event that the Business became insolvent, the parties may direct the Business or Trustee to transfer the Policies to a substitute Trustee, if they wish their Succession Plan to continue.

If the parties wish to terminate their business relationship altogether, they may direct the Trustee to transfer the Policies to the relevant Lives Insured.

Once the Lives Insured owned their own Policies, they could change the Sums Insured to meet their new needs.

In each case, there are no adverse Capital Gains Tax implications with respect to the transfer, because the Life Insured is and continues to be the "original beneficial owner" of their own Policy.

Company

If the Business is a single Company, it will normally be recommended that the Company itself be the Trustee and Policy Owner.

If the Business Structure or Group consists of a number of Companies or other entities (such as Trusts), it will normally be recommended that one of the Companies be the Trustee and Policy Owner.

If one of the Companies in the Group is intended to hold Business Assets securely away from any risk of exposure to creditors, it might also be an appropriate Trustee and Policy Owner.

However, this is not strictly necessary, because the Trustee will hold the Policies on the terms of the Insurance Trust anyway.

Unit Trust

If the Business consists of a Unit Trust, then it will normally be recommended that the Trustee of the Unit Trust be the Trustee and Policy Owner.

The Trustee will hold the Policies on the terms of the Business Insurance Trust Agreement (not the terms of the Unit Trust).

Discretionary (or Family) Trust

If the Business consists of a Discretionary (or Family) Trust, then it will normally be recommended that the Trustee of the Discretionary Trust be the Trustee and Policy Owner.

The Trustee will hold the Policies on the terms of the Business Insurance Trust Agreement (not the terms of the Discretionary Trust).

Partnership

If the Business consists of a Partnership, it will normally be recommended that the Partnership be the Trustee and Policy Owner.

If the Business Structure or Group also includes a Unit Trust (e.g., a Service Trust), then it will normally be recommended that the Trustee of the Unit Trust be the Trustee and Policy Owner.

Pre-existing Bank Account

It is expected that the Trustee will have a pre-existing bank account that it can deposit the Insurance Proceeds into and distribute them from at the time of a claim.

It is preferable that it not be necessary for the Life Insured to sign a cheque on the account (whether jointly or solely).

In other words, it will be necessary for other signatories to be able to sign any cheques after a claim (when the Life Insured would be either deceased or disabled).

One Page, Two Policy Succession Plan

In some cases, the Business might wish to obtain the benefit of a "One Page Succession Plan".

However, the Lives Insured may require some of the Buy/Sell or Personal Cover to be owned by a Public Offer Super Fund, where considered appropriate by the Adviser and Business.

Alternatively, they might require the Buy/Sell or Personal Cover to be owned by a Related Party of each Life Insured and the Debt Reduction or Personal Cover to be owned by the Business.

In these cases, the Hybrid Insurance Trust Agreement can be used to document a “One Page, Two Policy Succession Plan”.

Identity of Trustee and Policy Owners

This Agreement enables the cover for each Life Insured to be split between two or more separate Policies owned by different parties:

the Purchase Price and/or Personal Cover might be owned by the Life Insured or a Related Party (or a Super Fund, where appropriate); and
the Debt Reduction and Key Person Cover might be owned by the Business (on the terms of the current tax-effective Trust Structure).

Legal Fee

The same Legal Fee applies to both types of Agreement.

Adviser Tip

The Trustee controls the Insurance Proceeds, but the Trust Agreement controls the Trustee.

The Trustee has a contractual and fiduciary obligation to comply with the obligations contained in the Trust Agreement.

See more Adviser Tips

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