Splitdollar life insurance plans are popular among credit unions seeking to retain and reward key executives. While the safe harbor for converting the former to the latter or terminating it altogether expired on jan. Given that sdli arrangements are not subject to the antidiscrimination rules applicable to qualified retirement and other types of benefit plans, such arrangements give employers added flexibility in rewarding. Use of interestbearing loans as opposed to interestfree loans eliminates any impact from the original issue discount oid rules of irc sections 12711275. The difference between what were once called collateral assignment split dollar agreements and lrsdas is the subject of numerous articles. American general life insurance company the united states. According to the final regulations, a splitdollar arrangement is one between a policy owner and a nonownerother than group term insurance planswhere. A splitdollar arrangement does not need irs preapproval. Collateral assignment method the insured or the insureds trust owns the. Continued collateral assignment under this arrangement, the employee owns the insurance policy and the employer pays the premiums. Endorsement splitdollar life insurance arrangements, indicated that they believed that an. Understand how splitdollar life insurance plans between an employer. Because the bank holding company is the beneficiary of the life insurance policy, it is a participant in a transaction between a bank and a third party.
Split dollar is a strategy that allows the sharing of the cost and benefit of a permanent life insurance. With this plan, also known as equity split dollar, a life insurance policy is applied for on the life of an executive and, depending on the need, owned by the executive, hisher spouse, costockholder, or irrevocable trust. Though there are two types of agreements, the endorsement and collateral assignment, there are various ways to set up the arrangement with the executives some more beneficial to the financial institution than others. The trustee purchased a life insurance policy on the grantors life and entered into a collateralassignment, splitdollar arrangement with the grantors spouse. Split dollar life insurance after the final regulations inside this issue. The arrangements are called splitdollar because the death benefits, cash surrender values, and. Splitdollar life insurance is an arrangement that can further enhance the use of life insurance for estate planning. A need for life insurance should always be present before a splitdollar arrangement is implemented. A collateral assignment of life insurance is a conditional assignment appointing a lender as the primary beneficiary of a death benefit to use as collateral for a loan. Collateral assignment life insurance information top 8 tips. Collateral assignment form insurance and financial services. Split dollar arrangements under the economic benefit regime fall into two general categories. Splitdollar life as supplemental exec retirement good for.
The employer may have access to the policys cash value. Either party pays all or part of the premiums, with at least one paying party entitled to recover the premiums. Important splitdollar life insurance accounting is complicated. Another way a split dollar life insurance plan might be best for you is to fund a buysell agreement. Collateral assignment splitdollar life insurance arrangements are becoming popular for two primary reasons. No loss of grandfathering will result from the plan amendment. Accounting for postretirement split the pangburn group. The final splitdollar regulations journal of accountancy. Split dollar arrangements universal insurance services llc. Guidance on s corporation life insurance premiums raises. What is the collateral assignment of a life insurance. Recent developments affecting the accounting for splitdollar life. The basic solution proposes the use of a private restricted collateral assignment nonequity split dollar arrangement between the patriarch and matriarch of. In the untimely event of the death of the person who is named on the life insurance policy, the lender who has the insurance policy assigned as collateral gets paid.
These premium payments are loansto the employee to be repaid at a future point. Split dollar life insurance agreements can be a valuable tool to attract and retain executives. Collateral assignment form for use with life products use this form to collaterally assign the policyies referenced below. The arrangement under which an employer and an employee share the costs and benefits of a cash value life insurance policy on the employees life is known as splitdollar life insurance. The business pays the premiums on the policy by making a loan to the executive for the annual premium. One option is a collateral assignment split dollar arrangement. Except as provided in paragraph b3ii of this section, paragraphs d through g of this section do not apply to any splitdollar loan. Furthermore, when evaluating a collateral assignment splitdollar. When applicable, these rules require the executive to include in income the difference between the face. Collateral assignment split dollar tax implications. Insurancerelated compensation portfolio 828 bloomberg. Collateral assignment split dollar life insurance arrangement casd in the collateral assignment split dollar arrangement, the key executive is the owner and insured of the life insurance policy.
This agreement made as of the first day of october, 1997, by and between duke energy corporation, a north carolina corporation having its principal place of business in charlotte, north carolina the company, and henry b. Banks often use splitdollar life insurance arrangements to provide retirement. Splitdollar is a method of buying life insurance, not a reason for buying it. Aig in this form, the company refers to the insurance company whose name is.
The comprehensive guide to split dollar life insurance. Companies purchase life insurance for various reasons that may include protecting against the loss of key employees, funding deferred compensation and postretirement benefit obligations, and providing an investment return. Private split dollar plans enable two parties usually two family members, or a trust established by the insured and a member of the insureds family to split the cost of paying premiums of a life insurance policy. Loanbased split dollar insmark life insurance made. Once properly executed by borrower and lender, the document must be filed with the insurance company to have effect. The employee assigns the policy value as collateral for the loans. Splitdollar tax and legal guide with specimen documents. How split dollar life insurance works investopedia. The irs recently has announced changes in the taxation of splitdollar plans, and. Instead, the tax consequences of splitdollar life insurance plans have been. Compensation and postretirement benefit aspects of endorsement splitdollar life insurance arrangements, and eitf 0610, accounting for collateral assignment splitdollar life insurance arrangements.
Endorsement method the business owns the policy and the insureds beneficiaries along with the business are named as beneficiaries. In the last four years, there has been a 54% increase in the number of splitdollar plans at credit unions. Splitdollar life insurance support for your succession strategy. Collateral assignment method the concept a split dollar arrangement is a method of purchasing life insurance that splits premium payments, policy benefits, or both between a business and an employee or sometimes between two individuals or between and individual and a trust.
Multilife loan regime collateral assignment split dollar. What is the collateral assignment of a life insurance policy collateral assignment refers to the contractual designation of a company or other entity as beneficiary of a life insurance policy. Splitdollar life insurance agreements can be a valuable tool to attract and retain executives. Introduction in september 2003 the service published the final. Under the collateral assignment method, the insured or a third party owns the policy. Splitdollar life insurance isnt an insurance product or a reason to buy life insurance. Think of splitdollar life insurance as a winwin strategy between two parties. Split dollar is an arrangement where two parties share the cost and benefits of a permanent life insurance policy. Collateral assignment of life insurance definition. A large health system implements splitdollar life insurance policy. Private split dollar o a private split dollar agreement is an arrangement whereby one party donor pays that portion of the premium attributable to the economic benefit on the life insurance policy on the insured. The ownership of a life insurance policy used to fund a splitdollar arrangement has important tax consequences under. Collateral assignment splitdollar life insurance arrangements eitf 0610.
After plan amendment, the split dollar arrangement may continue as before. Split dollar life insurance guide how it works, policies. A collateral assignment of a life insurance policy notifies the borrowers insurance company the borrower has assigned an interest in her life insurance policy to the lender. Endorsement splitdollar life insurance arrangementseitf 064, and eitf issue no.
The employee pledges the policy as collateral for the loan. Economic benefit private nonequity collateral assignment. In plr 9636033, the service looked at an arrangement between an irrevocable insurance trust created by the insured and the spouse of the insured. Split dollar collateral assignment insurance plan agreement. Splitdollar is a strategy that allows the sharing of the cost and benefit of a permanent life insurance. Under a collateral assignment split dollar arrangement, the business loans a key employee money to pay the premium on a life insurance policy. Splitdollar life insurance is typically structured using one of these methods. With loan regime splitdollar, the insurance policy is owned by a senior employee who in turn assigns it to the credit union as security for a loan. The employer can be highly selective regarding which employees are covered. O gift taxes may be minimized due to low economic benefit rates used to measure the gift tax value of premium payments. Illustrates loan interest at least at the applicable federal rate established under irc sections 7872 and 1274d. New age split dollar leveraging the unified credit using. Collateralassignment splitdollar life insurance arrangements are becoming popular for two primary reasons. A collateral assignment is a typical transaction that will involve financial institutions as well as private lenders.