Business succession planning is a critical consideration for any business owner. Without a clear strategy, unexpected events such as the death of a shareholder or partner can lead to disputes, financial strain, and disruption to operations. Two key tools that can safeguard your company and ensure a smooth transition are trusts and cross-option agreements.
At Howard Wright Financial Planning, we help business owners across the UK implement these strategies to make sure insurance payouts are distributed to the right people, in a tax-efficient manner, while protecting the long-term stability of your business.
What is a Trust?
A trust is a legal arrangement that allows assets, such as life insurance payouts, to be held by a trustee for the benefit of specific individuals or entities.
In the context of business succession:
- Trusts ensure that life insurance proceeds intended for the business are paid directly to the surviving shareholders, rather than the deceased owner’s estate.
- This avoids potential disputes with family members who may inherit shares but are not involved in running the business.
- Trusts can also be structured to achieve tax efficiency, helping reduce inheritance tax liabilities.
What is a Cross-Option Agreement?
A cross-option agreement is a contractual arrangement between business owners that sets out how shares will be bought and sold if an owner dies or wishes to exit the business.
Key features include:
- The surviving shareholders have the option to buy the deceased owner’s shares at a predetermined price.
- The deceased owner’s family receives a fair value for their shares without having to get involved in the business.
- • Combined with a trust, the insurance payout is used to fund the purchase, providing liquidity to the surviving shareholders while ensuring a smooth transfer of ownership.
Why These Tools Are Essential for Succession Planning
1. Ensures Smooth Ownership Transitions
Trusts and cross-option agreements provide a clear roadmap for transferring ownership, reducing the risk of disputes and operational disruption.
2. Protects Family and Business Interests
Families of deceased owners receive the value of their shares fairly, while the business remains under the control of those best placed to run it.
3. Supports Tax-Efficient Planning
Using trusts can help minimise inheritance tax and other liabilities, ensuring more of the business value is retained for the surviving owners and key stakeholders.
4. Facilitates Funding Through Insurance
Life insurance policies structured into a trust can fund cross-option agreements, providing the liquidity needed for buyouts without placing financial strain on the business.
Working with a Chartered Financial Planner
At Howard Wright Financial Planning, we provide expert guidance on structuring trusts and cross-option agreements to protect your business, shareholders and family. As Chartered Financial Planners, the gold standard of our industry we ensure that your succession plan is practical, legally compliant and aligned with your financial goals.
Take Control of Your Business Succession
Succession planning is not a one-size-fits-all process. At Howard Wright, we tailor trusts, cross-option agreements and insurance to your company’s unique needs, safeguarding both your business and family.
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Contact our team of Chartered Financial Advisers on 0345 688 4939 or use our 20-second enquiry form to discuss how we can help you structure trusts and cross-option agreements that secure your business’s future and provide peace of mind for all stakeholders.
Disclaimer: The information provided in this blog is for general guidance only and does not constitute financial advice. We recommend seeking personalised advice from a qualified financial planner. Past performance is not indicative of future results. The value of investments can go down as well as up, and you may not get back the amount originally invested.
By choosing Howard Wright, you’re not just planning succession; you’re investing in your business’s continuity, financial security, and peace of mind. Contact us today to get started.