Business SuccessionApril 8, 2024by William Wong(Part 3) Business Succession Plans: Buy-Sell Arrangement In Will

In our previous discussion, we addressed concerns about the potential misuse of life insurance payouts in a buy-sell agreement. To establish a more reliable succession plan, we’re exploring an alternative approach that incorporates Wills.

Here’s how it works: You and your business partner will still get life insurance policies, but with a twist. Instead of using the insurance money directly for the buyout, each of you will name your own family members as beneficiaries of the insurance proceeds.

In your Wills, you can bequeath your company shares to your partner if you passed away. But there’s a condition: your surviving partner must arrange a buy-sell agreement with your chosen representative, i.e. your executor.

According to this buy-sell agreement between your executor and surviving partner, your shares will be transferred to your surviving partner, with the insurance money covering the full cost. If there’s any shortfall payment, your partner will need to pay it in installments to your representative (whether 12 months or 24 months). Once all payments are made, your representative will transfer the shares to your partner as specified.

Let’s take Mr. Tiew and Ms. Lim, co-owners of a furniture company, as an example. They each get life insurance policies, naming their spouses and children as beneficiaries. In their Wills, they specify that their shares will go to each other. For instance, Mr. Tiew would leave his portion of shares to Ms. Lim. But if Mr. Tiew passes away, Ms. Lim must arrange a buy-sell agreement with Mr. Tiew’s executor. The insurance money be used as part payment towards the “purchase” of the shares, and any shortfall payment will be paid by Ms. Lim to Mr. Tiew’s estate. Once paid, Mr. Tiew’s executor will transfer the shares to Ms. Lim, completing the process.

This cost-effective approach ensures a smooth transition of ownership and financial security for both partners. However, it’s important to note that in the event your executor delays or omits to administer your estate, your surviving partner is clothed with the rights to challenge the executor of your Will, potentially causing delays in executing your estate plan. Therefore, for a more holistic approach, it is advisable to setup a buy-sell agreement and buy-sell trust while you are still alive, but of course, at a rather higher fee.








假设Mr. Tiew和Ms. Lim一起经营一家家具公司。他们每个人都购买了人寿保险,并将自己的配偶和子女命名为受益人。在他们的遗嘱中,他们规定,如果其中一人去世,他们的股份将彼此之间转移。例如,Mr. Tiew会将他的股份留给Ms. Lim。但如果Mr. Tiew去世,Ms. Lim必须与Mr. Tiew的执行者安排一项买卖协议。保险金将作为购买股份的部分支付,任何差价将由Ms. Lim支付给Mr. Tiew的遗产。一旦支付完毕,Mr. Tiew的执行者将把股份转给Ms. Lim,完成整个过程。



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