• A Cross Option Agreement is a contract entered into by all Shareholders of a private limited company. 
• Each Shareholder grants "put and call options" ** to the other Shareholders over his shares, which are exercisable on death. 
• Each Shareholder takes out life insurance policies written in trust for the other option holders.

** put and call options relate to whether a trader expects the price of shares to rise or fall within a certain time frame.

Without the correct Business Estate Planning in place:

• Your spouse/Partner and children may not inherit your share of your business.
• Business Partners may not be able to buy out the deceased's share.
• The surviving spouse or children may be obliged to take over the running of the business.
• The value of the business could depreciate, owing to the inexperience of a beneficiary.
• The business may have to be sold, and the proceeds become liable to Inheritance Tax.

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Planning in advance ensures that both your business financial affairs and personal welfare are in safe hands, if the worst were to happen.

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Cross Option Agreement - Frequently Asked Questions

A Shareholder Protection policy provides funds for company owners to purchase a deceased Shareholder's equity, with a suitable Trust and a Cross Option Agreement.

A Single Option Agreement gives a critically ill or disabled business owner an option to sell his or her interest in the business. However, there is no option within this type of agreement for their co-owners to buy the interest.

A Double Option Agreement is an alternative name for a Cross Option Agreement. 

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What is Shareholder Protection? 

What is a Single Option Agreement?

What is a Double Option Agreement?

The surviving business Partner still retains their original share of the business. The deceased's business Partner's share is passed directly into a Shareholder Trust(s), from where the Life Assurance proceeds were initially paid. The surviving Director still has the fullest control of the business as he is a Trustee of the Shareholder Trust(s).

The Shareholder Trust(s) can also be utilised as a further efficient Income Tax planning tool. Now that a proportion of the business is in the Shareholder Trust(s), any dividends paid into the Trust(s) can be distributed to Beneficiaries of the Trusts, which may well have nil or low rate Income Tax.

Should the surviving Director/s decide to sell the business, only their original share will enter their Estate. The remaining share will belong to the Shareholder Trust(s), for which he and his family are beneficiaries. This share is also protected and cannot be assessed for IHT purposes or be at risk of being lost to long-term care costs, divorce or creditors/bankruptcy.

How does a Cross Option Agreement benefit the remaining business Partner?

We offer Business Estate Planning tailor-made to suit you and your business. We take the standard options on offer by other Estate Planning consultants a significant step further.

Our planning provides valuable protection to the business and dramatically reduces the possible impact of Inheritance Tax. Furthermore, the company and proceeds from a future sale of the business are protected for the Bloodline from IHT, remarriage, creditor claims and long-term cost of care.

Our planning leaves each Partner or Director's share of their business to individual Family Trusts through appropriate clauses written into their Wills.

Furthermore, the appropriate Life Cover will also be assigned to 'Shareholder Trusts' **, so that these proceeds do not impact the surviving individual Estates.

** A "Shareholder Trust" is a Trust which holds shares in a corporation. It also could relate to a Trust holding an interest in a limited liability company or partnership.

How do our Wills and Cross Option Agreements differ from the rest of the market?

If there is more than one Shareholder in a business, we will work with you to establish the most suitable outcome for you and the company.

How big a business do I need to have for me to benefit from Business Estate Planning?

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What is a Cross Option Agreement?

What steps should I take to set up a Cross Option Agreement?

Before setting up a Cross Option Agreement, we recommend you have sufficient Life Cover in place to protect all parties’ shares of the business. We also advise that you take out a company Will. 

This will ensure that the surviving business Partner(s) have the right to buy out the deceased's share of the business. This should not impFact on the surviving spouse and personal beneficiaries, whose inheritance will be covered by a Family Life Assurance Policy. Equally, the surviving spouse or Beneficiaries will be able to exercise their right to sell any share they inherit of the business to the remaining business Partner/s in exchange for either the market value or an agreed amount covered by a Family Life Assurance Policy.

If you or a business Partner dies, their share of the business will pass to their spouse or beneficiaries through their Will. This is now deemed to be part of their Estate. Whilst this share is held, and the business continues trading, the assets could be exempt from Inheritance Tax if they qualify for Business Relief (BR). **

Once the Cross Option has been effected, BR is no longer available on the proceeds, i.e. from any Life Assurance. The spouse's assets assessable for Inheritance Tax (IHT) have now increased by the funds received from the Life Assurance Policy, risking 40% of the IHT proceeds. Depending on the size of the business, this could be a significant loss.

These assets are also now at risk of being reduced by any future remarriage claims, creditors or bankruptcy and long-term cost of care.

** Business Relief reduces the value of a business or its assets when working out how much Inheritance Tax has to be paid.

 How does a standard Cross Option Agreement impact on someone's Estate?

What are the consequences of a standard Cross Option Agreement for the surviving business Partner?

With a standard Cross Option Agreement, the surviving Partner now owns 100% of the company. 

Whilst the business is still trading, and Business Relief is still applicable, this is viable. However, what will happen when they decide to sell the business?

In this scenario, the surviving Partner's Estate will be increased to include the proceeds from the sale. This leaves the spouse and other beneficiaries at risk of financial loss via Inheritance Tax, creditors & bankruptcy, divorce settlements and long-term cost of care.