A Split Dollar arrangement is a sophisticated financial planning strategy that helps fund payment of life insurance premiums. Throughout this blog we will continue to touch on various ways that Split Dollar plans can be used. We always recommend filling out a quick questionarre on our Audit page, where you can submit your questions and concerns directly to Mark to learn more about your situation. You can seek to get your information from a typical kool-aid agent or you can come directly to an experienced professional who can give you the truth about life insurance.
What is a Split Dollar Plan?
A Split Dollar arrangement is a plan in which a life insurance policy’s premium, cash values and death benefit are split between two separate parties. There are a multitude of different forms that have been used over the years for professionals and executives. These types of plans can minimize income and gift taxes connected with funding of large premiums, and/or to reduce the cash flow requires to fund a necessary life insurance policy.
Economic Benefit Regime
Many endorsement arrangements are used by companies to fund deferred-compensation benefits. A separate non qualified deferred-compensation agreement becomes necessary, and the plan must abide by the rules of the Internal Revenue Code (IRC) Section 409A. With ingenuity and creativity however, the plan may avoid the ramifications of IRC Section 409A if structured properly. The executive would be paid out as a lump sum after the end of a service period.
Loan Regime
Generally under loan regime, you or your company lend the annual premium to your trust. The trustee of the Irrevocable Life Insurance Trust (ILIT) repays the loan either during lifetime using a portion of policy’s net cash value and other available funds, or at death using life insurance proceeds. Unlike the endorsement arrangement, the employee or employee’s trust acts as the policy owner. The employee may designate a family member or trust as a beneficiary. Employer’s premium payments are secured by an assignment of the policy. Under loan regime split dollar, the empoyer’s payment of the policy premium is treated as a loan to the employee.
Someone once said, “You can resist an invading army, but you cannot resist an idea whose time has come.” Many believe loan regime split dollar may be the best executive benefit of choice moving forward.
“You can resist an invading army, but you cannot resist an idea whose time has come.”
To learn more about Loan Regime Split Dollar, Economic Benefit Regime Advance Split Dollar, or any split dollar life insurance plan just give us a call or leave us a message in the contact form! Stay tuned for more info on how you can get more out of your money.