Split Dollar Life Insurance
Split-dollar life insurance isn’t an insurance product or a reason to shop for life insurance. Split-dollar may be a strategy that permits the sharing of the value and advantage of a permanent life insurance policy. Any permanent life insurance policy that builds cash value are often used.
What Is Split-Dollar?
Most split-dollar life insurance plans are utilized in business settings between an employer and employee (or corporation and shareholder). However, plans also can be found out between individuals (sometimes called private split-dollar) or by means of an irrevocable life insurance trust (ILIT). This text primarily discusses arrangements between employers and employees; however, many of the principles are similar for all plans.
In a split-dollar plan, an employer and employee execute a agreement that outlines how they’re going to share the premium cost, cash value, and benefit of a permanent life insurance policy. The agreement outlines what the worker must accomplish, how long the plan will stay in effect, and the way the plan are going to be terminated. It also includes provisions that restrict or end benefits if the worker decides to terminate employment or doesn’t achieve agreed-upon performance metrics.
Since split-dollar plans aren’t subject to any ERISA rules, there’s quite little bit of latitude in how an agreement are often written. However, agreements do got to adhere to specific tax and legal requirements. Thus a professional attorney or tax advisor should be consulted when drawing up the legal documents.
Split-dollar plans are frequently employed by employers to supply supplemental benefits for executives and to assist retain key employees.
Split-dollar plans also need record-keeping and annual tax reporting. Generally, the owner of the policy, with some exceptions, is additionally the owner for tax purposes. Limitations also exist on the usefulness of split-dollar plans counting on how the business is structured (for example as an S Corporation, C Corporation, etc.) and whether plan participants also are owners of the business.
- Typically split-dollar life insurance plans are created by an employer and employee, or a shareholder and an organization.
- A worthy attorney or tax advisor should be consulted or used when creating a split-life plan’s legal documents.
- A split-life insurance plan isn’t actually a policy; it’s a contract wont to show how life assurance is going to be shared among beneficiaries.
- Split-dollar plans are terminated in two ways: at either the employee’s death or a future date included within the agreement.