With regard to the purchase and sale contract, the purchase price of the deceased`s interest or “the seller`s interest” in relation to the agreement is greater: the policy covered in the contract is a long-term insurance policy within the meaning of the Long-Term Insurance Act. There will, of course, be two policies. The policyholder of the first policy is the survivor, and the life insured under that policy will be that of the deceased. With respect to the agreement, the “purchase parties” (the survivor) influenced the policy on the life of each “seller” (of the deceased). Whitelaw McDonald can evaluate existing agreements to ensure that you have sufficient protection against potential litigation, taxes and legal fees by applying a buy-back agreement. The buy-sell agreement should cover these obligations: in this example, the CGT will be R95,000 – that is, R95,000, which the surviving family members must do without. This decrease in liquidity will continue to increase as the value of the business increases. As soon as the value of the business exceeds R 5,000, the small business concession will be lost and the cash shortfall will immediately increase by R75,000, with r750,000 multiplied by an effective rate of 10%. Co-shareholders are rightly advised to update their buy-back and sale agreements each year. This practice should be extended to their personal estate planning in order to assess the ever-increasing cash shortfalls due to the cgt commitment of the estate.
The executor will make the purchase and sale contract effective by transferring the shares of Paul`s estate to Mary. The basic costs of the property are the market value at which the estate acquired the shares and amount to R200,000. There is therefore no CGT to pay for this assignment. The idea is that each equity participant has the insurance policy on behalf of the person or unit that owns the equity in the company. In the event of an event being triggered, the Call/Sell Option Agreement provides that each participant agrees to sell their shares in the business to the remaining participants.