As Part 2 of this 2 Part Series, I would like to discuss strategies involving Corporate Split Dollar.
These days it seems that advisors have gone astray from the Corporate and Business Markets and have focused mostly on pre-retirees and baby boomers, and after almost 10 years with the final regulations of Split Dollar being announced, many advisors still think it’s not a viable opportunity.
However, to many a surprise, I’d like to say it’s still a strong life insurance / deferred compensation strategy for Corporate Execs., and Business Owners. But let me warn you, you better know what you are doing before you get into this space – there are many disasters that could happen if you don’t know what you are doing.
Split Dollar Life Insurance Planning has been one of the most popular and significant forms of executive benefit planning, and are merely a method of paying for one’s life insurance.
It can come in two different flavors, Loan Regime Split Dollar and Economic Benefit Split Dollar – there is also a hybrid form of this planning known as Switch Dollar. Switch Dollar basically starts out as Economic Benefit Split Dollar and “Switches” to a Loan Regime when the One-Year Term Rates of the EB Plan become cost prohibitive.
Although this Part 2 could be a book long discussion, I’m going to keep it simple, and focus on Loan-Regime Split Dollar.
Here is the profile you are looking for with this strategy. Perhaps a business owner wants to give a bonus to an employee, but be able to have control of that bonus. The business may not get a tax deduction for this strategy immediately, but they may be entitled to a deduction in the future.
The benefits of Loan Regime Split Dollar, is that you are making a “Loan” to the Key Employee year-after-year. As the business owner, you still have full control over this benefit. Anything above and beyond the Loan is a benefit to the Employee. If you have wealthy Corporate Executive clients, Split-Dollar can be a great perk for helping those executives start off their estate planning.
At a point in history with such Low-Interest Rates, there hasn’t been a better time for Split Dollar!
Financial Advisors who are recommending Split-Dollar Life Insurance should seek competent and capable advisors to help advise them regarding appropriate actions and strategy.
If you have any questions, or would like more information, please contact your Brokerage Manager!
