Are you braced for the unexpected?

Stuart Petrie, Private Client Tax Senior Manager at AAB, explains the benefits of business protection arrangements.

Have you planned for the future of your practice? In addition to recruiting and retaining a new generation of dentists, financial planning needs to be undertaken to ensure that the practice can buy out the interests of retiring partners.

Even with planning in place, funding this payment can prove problematic, particularly when an exiting partner is entitled to a share of the goodwill and property values. So what if this funding requirement is unexpectedly sprung upon your practice due to the sudden death of a partner?

Would your practice have sufficient funds to make the payment due to the partner’s estate? Or, would you and the other partners be in a position to inject the capital required?

The future of your practice could be put at serious risk if you do not have appropriate arrangements in place to allow the required payment to be made. This risk can be eliminated quickly, effectively and relatively inexpensively by putting business protection arrangements in place whereby:

• Each partner takes out a life assurance policy

• An agreement is put in place for the continuing partners to acquire the deceased’s interest from the estate

• The proceeds from the policy can be used to fund the payment.

The precise structure of such arrangements can vary and specialist advice should be sought to ensure that your practice implements the structure most appropriate to it. By introducing a trust into the arrangement, it is also possible to secure a tax efficient structure which allows more of the value of the partner’s interest to pass to their family and not to the tax man.

Business protection arrangements therefore help secure the future of your practice, while also delivering benefits to the family of the deceased partner at a time when they need it most.

Contact Stuart for more information: stuart.petrie@aab.uk