Cross Option Agreements Funded before a Shareholder Dies
Funding cross option agreements before death requires unbinding reciprocal options backed by trust policies to preserve tax relief and complete share transfers.
Double Option Structure
Meaning
Legal framework consisting of separate put and call options used to facilitate share transfers without creating an immediate binding contract for sale. The double option structure is frequently employed in estate planning to ensure that business assets remain eligible for specific tax reliefs. It prevents the transaction from being viewed as a pre-arranged sale by the tax authorities.
Relief Preservation
Securing tax advantages is the primary target for shareholders using this arrangement. Because the double option structure does not create a binding contract for sale at the time of signing, the assets remain part of the trading business for tax valuation. This distinction allows the estate to claim a reduction in inheritance tax.
Notice Sequence
Parties must deliver a formal notice to trigger either the put or the call option after a specific event like death. Once the notice is served, the contract for sale is formed and the price is paid according to the terms. This sequence ensures that the choice to proceed remains a separate legal act from the original agreement.
Settlement Flow
Cash changes hands only after the options are exercised and the share transfer is registered. The process concludes with the update of the company register of members.