Advanced Strategies
Split dollar,
structured for leverage.
A shared-cost life insurance strategy for businesses and families, dividing the premium, the cash value, and the benefit to keep taxable exposure low and capital where it belongs.
Split dollar divides the cost and benefits of a life insurance policy between two parties, so capital moves where it's needed without triggering the tax consequences of a traditional gift or transfer.
SPLIT DOLLAR
Who it is for.
This strategy is built for businesses and families who want to fund a life insurance policy for an employee, a child, or a trust, without absorbing the full cost or the full taxable gift.
- Business owners looking to retain and reward key employees
- Families funding a policy on behalf of a child or an irrevocable life insurance trust (ILIT)
- Anyone who wants to share premium cost without triggering a full taxable transfer
- Arrangements structured for either the short or the long term
HOW IT'S TAXED
Two structured paths.
The IRS recognizes two tax regimes for a split dollar arrangement, and the one you choose shapes how the arrangement scales over time.
1.
Economic Benefit Regime
The arrangement is treated as though the payer is providing a benefit to the recipient. In exchange, the payer retains a right to recover the premiums paid, either from the policy's cash value or from the death benefit.
2.
Loan Regime
Premium payments are treated as a series of loans from one party to the other, with the receiving party owing interest on the balance. This structure holds up better for long-term arrangements, since it doesn't scale up the way the economic benefit regime does.
TWO STRUCTURES
Corporate or family.
Corporate Split Dollar
The company pays some or all of the premium while a key employee, or a trust on their behalf, owns the policy. It functions as an executive benefit, a tax-advantaged form of compensation that uses company cash flow and keeps the taxable cost to the employee low. The employer retains a collateral interest, recovering premiums paid from the cash value or the death benefit.
Family Split Dollar
One family member funds a policy owned by another, or by a trust, without making a taxable gift for the full premium. The paying party retains a collateral assignment to be repaid from the cash value or death benefit, while the owner is taxed only on the smaller economic benefit each year, not the full amount paid in.
Related Strategy
Premium financing uses third-party capital to preserve liquidity while funding a life insurance strategy.
Structure the right arrangement.
Partner with an advanced strategies team that understands the mechanics, and the nuance, of split dollar.
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