Your Split Dollar Arrangement
The protection and retirement plan decisions you make today will impact you, your family, your business and your employees both today and at your retirement or death. Split dollar arrangements provide Key Executives with economical death benefit protection and, potentially, tax deferred cash value accumulations. There are two forms of split dollar – economic benefit and loan – each providing different benefit choices and tax results.
Threshold Questions
1. Do you have a split dollar economic benefit plan?
a. For the Owner(s)/For the Key Executives?
b. If yes, was the arrangement entered into prior to September 17, 2003?
2. Do you have a split dollar loan plan?
a. For the Owner(s)/For the Key Executives?
b. If yes, was the arrangement entered into prior to September 17, 2003?
3. Have you reviewed the plan terms and the policy performance in the last 3 years?
4. Is the plan providing targeted benefits to you and/or your Key Executives and meeting your expectations?
Plans entered into prior to September 17, 2003 have “grandfathered” tax status:
5. Has the agreement been reviewed by your attorney since September 17, 2003?
6. Have you made any changes to the agreement after September 17, 2003?
7. Does the participant contribute to the premium payment?
8. Do you provide the participant with tax information so they
may include that value in their gross income?
Plans entered into after September 17, 2003:
9. Does the business own the life insurance policy? If yes, please answer the following:
a. Does the Executive have any rights to the cash value in the policy?
b. Do you provide the appropriate tax information annually, including the economic benefit as well as the annual increases in cash value that may be accessed by the Executive?
c. Was a notice and consent obtained from the insured prior to the policy being issued?
If no, and the participant owns the policy, please answer the following:
a. Does the collateral assignment assign to the business all rights over the cash value to the business?
b. Does the collateral assignment assign to the business an interest in the policy equal to the outstanding loan amount?
c. Does the Executive pay interest on the loan to the business?
d. If the Executive does not pay interest, has the foregone interest been included in the Executive’s gross income?
Misc.
10. Do you have a written agreement spelling out the terms of the arrangement?
11. Have you reviewed the relative costs of continuing the plan?
12. Does a trust own the life insurance policy?
a. If yes – have gift tax returns been filed by the participant?
What questions or concerns do you have?
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