Split Dollar Plans

Split Dollar is a means by which a business can use its dollars to provide for the life insurance needs of its executives. Split Dollar refers to the practice of splitting insurance premiums between the business and the executive. While discussions will focus on split dollar plans between a business and an executive, similar plans can be arranged between an individual or trust and a third party, such as a family member.

By allowing the business to pay all or most of the premiums, the employee gets some economic benefit. The IRS determines the economic benefit annually. If the employee does not pay an amount at least equal to the economic benefit towards the policy, the employee is taxed on it.

At the death of the employee, the company receives all of the money it paid into the policy, but no interest. The trust receives the balance.

The advantage of Split Dollar is that the employer gets all of its money back and the employee gets large amounts of insurance that he or she normally could not afford.

The termination of a Split Dollar plan is called a rollout. The economic benefit is a function of age; as the employee gets older, the economic benefit increases until the Split Dollar plan is not practical. Rollout is the resolution.