2003 Heckerling Estate Planning Institute Presentation

SWITCH-DOLLAR LIFE INSURANCE

Split-Dollar after the New Rules and Regulations


Q. Why Switch-Dollar Life Insurance?

A. Tax Efficient Funding of:

  • Estate Taxes
  • Other Liquidity Needs
  • Business Continuity Plans
  • Buy-Sell Agreements
  • Charitable Bequests
  • Defective Grantor Trust Installment Notes


IRS NOTICE 2002-8 + PROP. REGS.

GUIDANCE ON THE TAX TREATMENT OF SPLIT-DOLLAR LIFE INSURANCE
      • Taxation as Economic Benefit
        (Endorsement) Split-Dollar

        Or
      • Taxation as Split-Dollar Loan
      • Limited Grandfather Protections for:
        • Existing Plans (entered into before Jan. 28, 2002)
        • New Plans (entered into before Final Regs.)
      • Changes in Term Rates Used to Measure Annual Economic Benefit ("AEB")
      • Planning Opportunities & Risks
      • Window of Opportunity for New Plans
 

SIDEBAR:

The (Interest-Free) Loan Transaction




INSURANCE

          • Insured: Mary Jones (Current Age 70)
          • Whole Life (Current DB $8.4M)
          • Corporate Switch-Dollar Plan
            (Collateral Assignment)
          • Insurance Trust Is Owner & Beneficiary











SIX QUESTIONS TO ASK YOUR INSURANCE AGENT
  1. How will you quantify the multiple tax impacts of the Notice on both existing and new split-dollar plans?
  2. For existing plans (pre-Jan. 28, 2002 plans), what action do you intend to take, especially to take maximum advantage of the limited grandfather protection provided?
  3. For new plans (plans adopted after Jan. 28th but before the date of final regs.), what action do you intend to take, especially to take maximum advantage of the window of opportunity that is now open?
  4. If you advise switching to a loan from a split-dollar plan (existing or new), how will you account for loan interest for income, gift, and generation-skipping tax purposes?
  5. If you advise against switching to a loan, how will you account for policy equity at rollout for income, gift, and generation-skipping tax purposes?
  6. What is your exit strategy for the plan design you recommend?

We do not express any opinion on the investment, legal, or tax consequences of this plan, and you are responsible for consulting your own investment advisors, legal counsel, and accountants for all such advice.

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