Many business partners insure each others lives in order to find the necessary liquidity to buy out a partner who may have died or has become totally and permanently disabled.

[The definition of “Partner” relates to any business structure (Company, Unit Trust or Partnership) where “business partners" are identifiable, rather than the strict legal definition of “partner"]

Normally a buy/sell agreement is entered into by all partners which covers such issues as a valuation formula for the business, who can buy and who can sell, release of personal assets held by bankers to guarantee business loans, an obligation for a party to buy and just as importantly an obligation for a party to sell.  We call this a BUSINESS WILL.

It has been our experience that many businesses DO NOT have a buy/sell agreement in existence and where they do, the Agreement is badly drafted and can cause Capital Gains Tax (CGT) tax issues, amongst other problems.

Often partners are confused in that they may have a partnership agreement and think that this agreement will suffice in all cases.  Often this is not the case and many difficult problems emerge leading to costly litigation.

There has been a new development where a specific insurance company has negotiated with the ATO and APRA to allow, in many cases, for the insurance premiums to be claimed as a tax deduction which naturally would decrease the cost of insurance considerably.

Where insurance exists in relation to buy/sell agreements, it is important to review the coverage available, the cost of premiums and, also, the tax deductibility of those premiums.