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co-shareholder or co-member to acquire the deceased’s interest at his
death. If there was a different intention, the deduction will not apply,
even if the policy proceeds are actually applied to obtain the deceased’s
interest.
n The reason for the exemption of such policies from estate duty is to prevent
the paying of double estate duties on the same interests. The actual business
interest (whether it be shares or a % ownership in the business) are generally
included as an “asset” in the estate, and thus for estate duty purposes,
however the proceeds used to purchase these interests are excluded.
n It is important to note that first and foremost, the buy and sell agreement
needs to be in place between the partners, which is then funded by life
insurance, so that the arrangement is legally enforceable, and the intention is
reduced to writing.
n The partners may also decide to propose for key man insurance, where
one partner is a “key” person in the business, whose particular skills and
knowledge are essential for continued success of the business.
n The life of that partner is insured by the partnership, which owns and funds
the policy. This insurance protects the partnership against financial loss
which may be caused by his /her untimely death. In attributing a value to
such key man policies, factors such as the cost of appointing and training
a replacement and the decline of profit of the business is taken into
consideration.
n When the policy is taken out the partnership can elect if the premiums are
tax deductible. If the election is made for the premiums to be tax deductible,
when the policy pays out the proceeds will form part of gross income.
n If however the election is not made for the premiums to be tax deductible,
when the policy pays out the proceeds will be exempt from tax.
The sole proprietor
n Sole proprietors should also consider succession planning.
n A sole proprietor’s Last Will and Testament should state who should be
approached first to take over the business, and how the executor should deal
with the situation.
n The sole proprietor will need to make a decision as to whether he wishes to
leave his business to an associate or to a family member. It could be useful
for the sole proprietor during his lifetime to give or sell the named successor

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