It's hard to believe, but in over 11 years of blogging, we've never talked about the 'split dollar' life insurance funding technique:
"A split dollar plan allows an executive to obtain life insurance coverage using employer funds. The investment by your business in the plan is fully secured. If the insured employee dies or his or her employment is terminated, your business is reimbursed from the policy proceeds for its payment of premiums."
Now, why would an employer want to offer this? Well, it's a way to reward valuable employees (executives, key supervisors and the like) in a way that, unlike most benefits, doesn't require offering the same deal to everyone. Basically, the two parties (employer and employee) split the cost of coverage using whatever permanent type of coverage is appropriate (Universal or whole Life, for example).
It's an economical way to help a favored employee afford more long term coverage, and acts as "golden handcuffs" to entice him to stay. The concept itself has been used successfully for many years, and is generally well-accepted by the IRS.
But one can "up the ante" a bit by adding an "Inter-Generational" twist. These arrangements are generally family-directed. For example:
An elderly and permanently incapacitated mother acquired, on a lump-sum basis, life insurance on each of her three sons. The Tax Court was asked if this "would be deemed a taxable gift to the extent that the premium payment exceeds the value of current life insurance protection."
That is, since the death benefit of the insurance policies would always be greater than the (one-time) premium paid, would that premium be taxable? The Court actually ended up ruling that it wouldn't.
Now, why is this interesting to those of us who don't have extremely wealthy (and desperately ill) parents? Because it reaffirms the basic value of the split dollar concept itself and, who knows, perhaps you'll one day be that wealthy orderly parent.
Not to mention that emphasizing the need for well-thought-out estate planning.
"A split dollar plan allows an executive to obtain life insurance coverage using employer funds. The investment by your business in the plan is fully secured. If the insured employee dies or his or her employment is terminated, your business is reimbursed from the policy proceeds for its payment of premiums."
Now, why would an employer want to offer this? Well, it's a way to reward valuable employees (executives, key supervisors and the like) in a way that, unlike most benefits, doesn't require offering the same deal to everyone. Basically, the two parties (employer and employee) split the cost of coverage using whatever permanent type of coverage is appropriate (Universal or whole Life, for example).
It's an economical way to help a favored employee afford more long term coverage, and acts as "golden handcuffs" to entice him to stay. The concept itself has been used successfully for many years, and is generally well-accepted by the IRS.
But one can "up the ante" a bit by adding an "Inter-Generational" twist. These arrangements are generally family-directed. For example:
An elderly and permanently incapacitated mother acquired, on a lump-sum basis, life insurance on each of her three sons. The Tax Court was asked if this "would be deemed a taxable gift to the extent that the premium payment exceeds the value of current life insurance protection."
That is, since the death benefit of the insurance policies would always be greater than the (one-time) premium paid, would that premium be taxable? The Court actually ended up ruling that it wouldn't.
Now, why is this interesting to those of us who don't have extremely wealthy (and desperately ill) parents? Because it reaffirms the basic value of the split dollar concept itself and, who knows, perhaps you'll one day be that wealthy orderly parent.
Not to mention that emphasizing the need for well-thought-out estate planning.
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