Questions you will be asked when buying a yacht
by Alex Scott
Crossing Ts and dotting Is
As a buyer zeros in on a specific boat, the initial steps towards closing often begin during due diligence. A maritime attorney will be a valuable ally for assisting the buyer in selecting the best ownership structure (such as an offshore company or trust) and registration for his or her yacht.
‘The first question I ask the buyer is, “What do you want to do with your yacht?”,’ says Danielle Butler, a maritime attorney with Fowler White Burnett. ‘In order to make decisions about the ownership structure and the best flag state for registry, I have to know about the boat itself.
‘Then I ask how the owner plans on using the boat, which includes whether they want to charter the boat, where they want to take the boat, what kind of crew they plan on having as well as a number of other issues, which helps me narrow down the best possible plan for them.’
Because a buyer’s nationality can affect the purchase process, brokers typically have that information already. ‘If for some reason I do not already know the buyer’s nationality, I am going to ask,’ Butler says. ‘Nationality not only has the potential to dictate where a boat must be sold and closed, but nationality also helps me determine the best avenue for ownership structure and registry.’
Butler says she will also ask about the buyer’s residency and where he or she owns and operates businesses: ‘Depending on where the owner resides or does business, there could be potential tax consequences, which should also be taken into consideration.’
Owner nationality – and the related tax, legal and crew implications – as well as use intentions are important factors for flag state selection.
‘We’ll take a look at all the information and help the owner choose the best ownership structure,’ says Butler. ‘We’ll discuss whether it makes sense for the boat to be a personal or a corporate-owned asset for the buyer.
‘The ownership structure needs to be consistent with the buyer’s estate, so I often ask about estate planning at this point to ensure that the new asset is effectively captured in the estate.’
Covering Your Assets
As a yacht is a substantial financial investment, you’d be remiss to ignore the need for insurance.
Nancy Poppe with insurance company Willis says, ‘Once I know the essential information about the boat, build, year, length, etc., I am going to ask the owner what their intended use for the boat is going to be both in the near term and long term.’
Details like geography, crew nationality, flag state and even whether the boat will be managed or not will all have some role in composing coverage.
Next, Poppe says she’ll try to get a feel for her clients’ insurance habits. ‘I want to know what they’ll need to sleep at night, which lets me know how much coverage to offer.’
Additional variables that come into play from this perspective are whether the boat will have any ambitious plans like exploration or participation in research.
Tenders and toys need to be considered as well, says Spencer Lloyd of Frank Crystal & Company, as they can have an impact on the yacht’s insurance. And the tender will need its own coverage. ‘So would amenities like submarines or ground transportation, like a car or motorcycle,’ Poppe adds.
One question from the insurer that can surprise an owner is ‘Who is your captain?’
The insurers will want to see your captain’s CV and prior claims history. Although not common, an insurer may decline coverage for a captain if the captain’s work history and credentials do not meet certain criteria appropriate for the boat. The same is true for additional licensed officers.
The insurance company may also ask about the nationality make-up of your captain and crew in order to determine rates.
There are many decisions to be made during the purchase and closing process. In helping a buyer navigate the voyage to ownership, experts are going to ask lots of questions. But with the right team creating the right management strategy, the journey will be one of smooth sailing, leaving just one question… where to go first?
Originally published: July 2012.