I have a client who is a shareholder in a small business. His co-shareholders have all joined at different times and when they have, each shareholder has put in place shareholder protection insurance. Because they were all relatively young and in good health, the premiums are very competetive. However, they have over-insured and once the cross option has been exercised, there will be a surplus. Each policy is written in to trust (about 6 different trusts, from different providers). Each of the shareholders have different requirements as to what they would like to happen to the surplus insurance in the event of their death. At the moment, each policy is written to benefit the co-shareholders.
Has anyone come across a similar situation and how did you deal with it?
One option would be to add in the widow/widower of the shareholder as a potential beneficiary but in some of the trusts, there is no option to add. Further, some have more convoluted requirements involving beneficiaries other than just the spouses. Could we create a ‘master trust’ to ‘mop up’ the surplus or would this be too messy given the number of different trusts/potential beneficiaries…
Another option I considered was to create a new (non voting) class of shares and allocate one to each spouse so that they would be included as a co-shareholder, and to direct the Trustees in a letter of wishes. However, I am concerned about reservation of benefit if spouses are potentially beneficiaries of the trust.
Any advice/suggestions welcome…