Structuring the Contingent Liability Solution

1. “Contingent Liability Briefcase” Sanlam Business Market Structuring the Contingent Liability Solution Sanlam Business Market

2. “Contingent Liability Briefcase” Sanlam Business Market This presentation gives you an overview of the contingent liability policy structure, the tax implications of the structure as well as the importance of the agreement. The support material is available in English and Afrikaans and can be downloaded from the Contingent Liability briefcase or Sanport. Structuring the Contingent Liability Solution Sanlam Business Market

3. The 1-2-3 of Business

4. Securing the Surety Three (3) Primary Funding Mechanisms Pay Cash Requires large sums of liquid assets that may not be readily available, particularly at the time of an unforeseen event. May have to liquidate valuable personal or business assets below market value in order to raise cash quickly. Borrow the Money The loss of an owner or key person may impair the credit rating of the business and its ability to borrow. Principal plus interest must be paid. This could be a tremendous strain on the business budget. Funds available immediately. See structure of the solution on the next slide Purchase a Life Assurance Policy

5. Contingent LiabilityStructuring the Solution Business Bank 1. Bank provides the loan 6. Business repays the loan 4. Business takes out a life/disability policy on the life of the business owner 3. Agreement between the business owner and the business 5. Sanlam pays the proceeds to the business 2. Business owner stands surety for the loan 5. Business cedes policy to the bank, Sanlam pays the proceeds of the policy to the bank Sanlam Business Owner

6. If the solution is structured correctly • No income tax payable • Premium not tax deductible • Benefit paid free of tax • No CGT payable • Estate duty payable • Less a “rebate” (premiums paid plus 6% compounded) • Estate duty payable the business • The contingent liability problem is solved!

7. Why are contingent liability policies estate dutiable? SARS practice note – “Estate duty implications of key man policies” Author: Ina Marx

8. Contingent LiabilityUnderstanding the tax implications of the structure

9. Contingent LiabilityUnderstanding the tax implications of the structure

10. Contingent LiabilityUnderstanding the tax implications of the structure

11. Contingent LiabilityUnderstanding the tax implications of the structure

12. The importance of the agreementBetween the business and the business owner • Purpose of the agreement is to protect the personal estate of the business owner where he/she has guaranteed the debts of the business. • Death / Permanent Disability Benefits • Premiums – paid by business when due • Order in which proceeds of policy must be applied • Pay holders of any surety, the amount to which the business is lawfully indebted • Pay any amount owed by the business to the business owner, whether on loan account or otherwise • Utilise any surplus in the best interest of the business, at its discretion The Contingent Liability Agreement, ready for the client’s signature, comes standard when a 1-2-3 of Business is requested.

13. The importance of the agreementBetween the business and the business owner • Irrevocable right of first option to purchase the policy from the company • Securities cancelled • Contingent liabilities paid in full • For a price equal to the total of premiums paid • Business shall not dispose, alter, cede or terminate the policy without the written consent of the business owner • Binding effect on the parties’ • estates, executors, heirs, liquidators, administrators, successors-in-title and assigns The Contingent Liability Agreement, ready for the client’s signature, comes standard when a 1-2-3 of Business is requested.

14. The 1-2-3 of Business