How does a split dollar agreement work?

How does a split dollar agreement work?

Split-dollar life insurance is an agreement—rather than a policy—between an individual and employer (or trust) using permanent life insurance. The employer pays all or most of the premiums while retaining an interest in the policy’s cash value and/or death benefit.

What are the different types of split dollar plans?

There are 2 types of split dollar plans.

• Collateral assignment / loan regime.
• Endorsement split dollar / economic benefit regime.

What can be split in a split dollar life insurance plan?

What is a Split Dollar Program? A split dollar arrangement is a plan in which a life insurance policy’s premium, cash values, and death benefit are split between two parties. A split dollar arrangement can be helpful in estate liquidity planning to minimize income, estate, and gift taxes.

Who owns a split dollar plan?

Generally, under a Split Dollar plan, a permanent life insurance policy’s death benefit and cash value are split between the owner and non-owner of the life insurance contract. Typically, one party has the cash flow to fund the majority of the policy premiums.

What is one of the major disadvantages of split dollar plans?

Disadvantages of split dollar life insurance plans Your business will generally receive no tax deduction for its share of premium payments under the split dollar plan. Depending on how the agreement is structured, employees may have to pay income taxes each year on the value of the economic benefits provided to them.

How is split dollar life insurance taxed?

If the employer is the owner of the split-dollar policy, the employer’s premium payments are treated as providing taxable economic benefits to the executive. The economic benefits include the executive’s interest in the policy’s accessible cash value and current life insurance protection.

Which of the following best describes the advantages of a split dollar life insurance plan?

Which of the following best describes the advantages of a split-dollar life insurance plan? low cash outlay for the executive.

Who is the beneficiary in a split dollar life insurance policy?

The endorsement split dollar plan is one that is owned by the employer. The premiums are paid by the employer and the beneficiary is listed as the employee.

Are Split dollar Plans tax deductible?

Split-dollar agreements look a lot like interest-free loans. The IRS, however, took the position in the 1964 Revenue Ruling that split-dollar arrangements would be considered by the IRS to be a taxable fringe benefit to the employee rather than an interest-free loan.