partnership insurance for solicitors
Post on 27-Mar-2016
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DESCRIPTIONPartnership Insurance for Solicitors
KEEPING YOU ON COURSE
You can remain incontrol even when the unexpectedstrikes.
IntroductionOn death the shares of a deceased solicitor form part of their estate. Those who inherit the shares may
not want to get involved in the business or the surviving partners may not want the next of kin to come
into the business. Most feasible option is to sell share of business back to the surviving partners. This
would require the partners to produce a substantial lump sum. The solution is Partnership Insurance -
an arrangement can be put in place whereby on the death of a partner, funds become available to buy
share of business back from the next of kin.
The partners of a practise may be legally bound, either under their own Partnership Agreement, or
under the Partnership Act 1890, to pay an immediate capital sum to the deceased partners estate in
respect of:n the deceased partners share of undrawn profits for the year in which he / she died.n the deceased partners share of any partnership fixed assets, such as the office-building.n the balance of his / her capital or loan account.n a payment in respect of the deceased partners share of partnership goodwill.
It wont happen to our PractiseThe odds of one partner dying or becoming seriously ill before retirement are probably higher than you
Age Sole 2 Partners 3 Partners
35 13% 23% 32%
40 12% 22% 32%
45 12% 21% 30%
50 11% 19% 28%
(Odds of one dying before age 65)Source: mortality tables (AM92) published by the Institute of Actuaries (UK)
Ask yourselfHow would your partnership survive if one of the
partners became seriously ill or died?
If your partner died what would happen to their
share of the partnership?
How would you feel about a partners family
joining your business if he/she died suddenly?
If you died what would happen to your share of the
Are your spouse or children in a position to take
your place in the partnership?
How will your family survive financially?
Implications if partnership insurance is not put in placeSurviving Partners
Next of Kin retain Shareholding
The deceased partners spouse and children may
decide to retain shareholding and come into the
There could be disagreements about how the
business should be run, particularly if the next of
kin had no experience of the business.
Refusal to sell
The ideal outcome for the surviving partners
may be to buy back the deceaseds shareholding
from his/her next of kin. But what happens if
they refuse to sell?
Lack of liquid capital
Even if the deceaseds next of kin are willing to
sell, the surviving partners simply may not have
sufficient liquid capital to buy the shares from
The surviving partners could borrow the
necessary funds but they would then be faced
with the burden of loan repayments for years to
Next of Kin
An illiquid asset
If share in business is not sold, the next of kin
may be left holding a paper asset producing
little or no income. The position could be
even more serious if the shares also give rise
to an immediate inheritance tax liability for
No ready market for shares
The problem is compounded by the fact that
the next of kin may not be permitted to sell
their partnership share to any other third party.
They must therefore wait for payment from the
We have a solution to suit
your type of business
How it worksEach partner effects a life insurance policy on his/her own life, for a sum insured equivalent to the
estimated full market value of his/her partnership share. The premiums are generally paid by the
partners themselves or by the partnership from that partners share of the profits. The premiums are
not tax deductible.
Each policy is arranged under trust (using the Partnership Insurance Trust Form) so that on death, the
proceeds are payable directly to the trustees for the benefit of the surviving partners.
A legal agreement is put in place between the partners using a Partnership Double Option Agreement.
In the event of death, the proceeds of the life assurance policy are payable to the surviving partners to
be used to buy back shares from the deceaseds next of kin.
Legal AgreementDouble Option Agreement - is a legal agreement put in place between the partners, giving the
surviving partners an option to buy shares back from the deceaseds partners next of kin and the next
of kin an option to sell the shares to the remaining partners. If both parties mutually agree not to
exercise the option, the deceased partners successors retain shareholding and come into the business.
Navigation Wealth can help keep your business on course
Tax Position*Next of Kin
A shareholding in a partnership passing to a
legal spouse is exempt from Capital Acquisitions
Tax (CAT/Inheritance Tax) but shares passing to
any other individual will be subject to normal
The proceeds from the disposal of the share in
the partnership would be liable to Capital Gains
Tax in the hands of the deceased partners next
Capital Gains Tax would only arise for the next of
kin in respect of any increase in the value of the
share of the business from the date of death to
the date of disposal. It is unlikely there would be
any such increase in share value in a partnership,
which has just suffered the death of a partner.
On death the proceeds of the policy are paid to
the trustee(s) of the policy for the benefit of the
The Revenue Commissioners have clarified that
the proceeds of such a policy are exempt from
Inheritance Tax in the hands of the surviving
partners, in certain circumstances, to the extent
that they use the proceeds to purchase the
deceaseds share of the business.
The proceeds of partnership insurance payable
on death or disablement are not liable to Capital
Gains Tax under current legislation.
* Own Life in Trust Arrangement
KEEPING YOU ON COURSE
Navigation WealthUnit 1F/1G,
North Valley Business Centre,
Old Mallow Road, Cork.
T: 021 490 9104
Navigation Wealth Ltd trading as Navigation Wealth is regulated by the Central Bank of Ireland.
Company No. 394662. Registered Office: Unit 1F/1G, North Valley Business Centre, Old Mallow Road, Cork.