Split Dollar Life Insurance?

[Randy Watson]

I'm trying to figure out how to categorize the following split dollar agreement. The employee owns the policy and pays the premiums, but assigns a portion of the death benefit to the employer and the rest will belong to the employee's beneficiary. The employee is also an owner of the company. Is this key man insurance? Is this a non-equity collateral assignment? Is it even a split dollar agreement if the employee owns the policy and pays the premiums? Please help!

[XTitan]

What determines the portion of the death benefit assigned back to the company? This doesn't make sense to me unless the company was bonusing the premium to the employee and then collecting it back from the death proceeds. If that's the case, I'd call it equity collateral assignment where the employee is taxed on the value of the premium and not the death benefit. I'd also raise an issue whether this is a disguised dividend to an owner.

[Randy Watson]

What determines the portion of the death benefit assigned back to the company? This doesn't make sense to me unless the company was bonusing the premium to the employee and then collecting it back from the death proceeds. If that's the case, I'd call it equity collateral assignment where the employee is taxed on the value of the premium and not the death benefit. I'd also raise an issue whether this is a disguised dividend to an owner.

I need to clear up some facts. The employer does pay a portion of the premiums...a specific dollar amount that represents the term cost coverage. The employee pays the rest. The employer is entitled to the death benefit and the employee's beneficiary is entitled to any excess. Is this a reverse split dollar? I thought I read that reverse split dollars were no longer permissible. HELP!

[XTitan]

Smells like reverse split-dollar to me. See Notice 2002-59 for the bad news.

[Randy Watson]

Smells like reverse split-dollar to me. See Notice 2002-59 for the bad news.

Is this really a ban on reverse split dollar agreements? You can't use PS 58, Table 2001 or the insurer's rates. Do you think that there is any rate you can use to appease the service?

[Ron Snyder]

The Split Dollar Regs provide 2 ways to "appease" the IRS: the "loan regime" and the "economic benefit". Reverse split dollar is gone effective in 2003. Here is a nice summary of the split dollar regs: Summary of Split Dollar Regulations

[Guest VEBAPLAN]

Tru dat Ron