Private Limited Collateral Assignment Split Dollar

Transcription

1 Private Limited Collateral Assignment Split Dollar For: A. J. Montgomery/Nancy Montgomery Presented By: [Licensed user's name appears here]

2 Private Limited Collateral Assignment Split Dollar Preface Of all the strategies used by families for wealth preservation planning, Limited Collateral Assignment Split Dollar is one of the most efficient. With this arrangement, parents (referred to as " Sponsor") pay a substantial share of the premiums for a cash value life insurance policy insuring one (or both) of their lives. An irrevocable trust (referred to as " Recipient", or "trust") formed on behalf of children is typically the owner of the policy. Through use of a Split Dollar Agreement containing a limited collateral assignment, the Recipient assigns the Sponsor an interest in the policy equal to the Sponsor's aggregate premiums or the policy's cash values, if greater. (This means that none of the policy's cash values are the property of the Recipient -- a key to avoiding additional gift tax consequences associated with The Final Split Dollar Regulations (68 FR 54336) issued in September 23.) The trust is usually expected to pay a portion of the plan's premiums, and these payments are pegged to the IRS-approved Table 21 rates issued in IRS Notice In the accompanying presentation, gifts from the Sponsor are illustrated in order to offset the trust's schedule of payments. Normally any premium payment by the trust would result in taxable income to the Sponsor (Reg. Section (f)(2)(ii)); however, the accompanying illustration assumes that the trust is an intentionally defective, irrevocable, grantor trust in which the trust and the Sponsor are assumed to be a single income tax entity, and thus the Sponsor should not be taxed on the trust's payment to the plan. (IRC Secs. 671 and 675, Reg. Section (c), and Rev. Rul ) The main purpose of the arrangement is to provide the trust with access to inexpensive life insurance death benefits, keep the policy's death proceeds out of the Sponsor's estate, yet not have any portion of the policy's cash values constitute gifts to the trust. This strategy combines low cost coverage for the trust with an impressive array of cash values for the Sponsor, thus generating a program that should be financially compelling to both Sponsor and the trust. $2,k 1,5k 1,k 5k $2,k Cum. Gifts Cum. Net Payments Yrs ,5k 1,k 5k Sponsor's Payments Sponsor's Values Cash Value Yrs $333,319 $116,681 $996,486 $2,k 1,5k 1,k 5k $2,k Cum. Net Payments Yrs ,5k 1,k 5k Recipient's Payments Recipient's Values Yrs $ $53,514 This graphic assumes the non-guaranteed values shown continue in all years. This is not likely, and actual results may be more or less favorable. Page 1 of 1

3 Who Pays What - Who Receives What Sponsor Pays Recipient Pays Gift Life Insurance Policy Sponsor Receives Recipient Receives Cash Value Death Benefit 1 Death Benefit 1 Equal to remaining balance after Recipient's portion is deducted. Page 2 of 1

4 Recipient's Net Payment Analysis CVI Interest Rate 8.% Sponsor A. J. and Nancy Montgomery Recipient and Policy Owner Montgomery Family Trust Year M/F Ages (1) Gifts to Recipient (2) Split Dollar (3) Accum Value* (4) Cash Value* (5) of Death Benefit (6) Net Payment** (7) of Death Benefit 1 65/ ,882 2,626 14,882 1,485, / ,855 17,67 29,737 1,47, / ,819 33,794 44,557 1,455, / ,773 51,88 11,188 59,329 1,44, / ,715 69,884 29,984 74,44 1,425, / ,645 89,955 52,5 88,689 1,411, / ,561 11,965 75,55 13,25 1,396, / ,46 133,639 99, ,71 1,382, / , , , ,56 1,367, / , ,35 153,38 153,38 1,346, / ,8 21,55 183, ,122 1,316, /71 1,88 13, , , ,228 1,285, /72 1,294 13,76 267, , ,179 1,253, /73 1,53 13,47 296, , ,977 1,221, /74 1,87 13, , ,51 313,51 1,186, /75 2,126 12, , , ,964 1,15, /76 2,55 12, ,36 388, ,328 1,111, /77 2,945 12,55 434, , ,257 1,71, /78 3,422 11, , , ,478 1,3, /79 4,6 1, ,35 512,35 512,35 987, /8 4,7 1,3 553, , , , /81 5,56 9,44 596,4 596,4 596,4 93, /82 6,489 8,511 64,799 64,799 64, , /83 7,415 7, , , , , /84 8,393 6,67 736,77 736,76 736,76 763, /85 9,374 5, , , , , /86 1,499 4,51 836, , , , /87 11,667 3, ,29 889,29 889,29 61, /88 12,987 2,13 942, , , , /89 14, , , ,486 53, , ,319 *This is an example of a "supplemental" life insurance illustration. In actual presentations, this footnote will refer you to an accompanying "basic" illustration from a specific life insurance company. **See Recipient's Net Payment Analysis. Split dollar arrangement presumed terminated in year 3. Page 3 of 1

5 A Look at Year 3 Sponsor Recipient 116, ,319 Cumulative Net Payments Cumulative Gifts to Recipient 996, ,486 Cash Value 53,514 Page 4 of 1

6 3 Year Analysis Sponsor's Payments Recipient's Payments $2,k Cum. Gifts Cum. Net Payments $2,k Cum. Net Payments 1,5k 1,5k 1,k 1,k 5k $333,319 $116,681 5k $ Yrs Yrs Sponsor's Values Recipient's Values $2,k Cash Value¹ $2,k 1,5k 1,5k 1,k $996,486 1,k 5k 5k $53,514 Yrs Yrs Sponsor cash value equal to Sponsor death benefit in year 1 and thereafter. Page 5 of 1

7 Recipient's 3 Year Analysis $1,6, $1,2, $8, $53,514 $4, $ $ Years Recipient's Cumulative Net Payments $ At Year 3 Recipient's $53,514 Page 6 of 1

8 Sponsor's 3 Year Analysis $1,, $996,486 $996,486 $75, $5, $333,319 $25, $116,681 $ Years At Year 3 Sponsor's Cumulative Gifts $116,681 Sponsor's Cumulative Net Payments $333,319 Sponsor's Cash Value $996,486 Sponsor's $996,486 (DB equals CV in year 1 and thereafter.) Page 7 of 1

9 Recipient's Net Payment Analysis CVI Interest Rate 8.% Sponsor's Gifts Sponsor's Costs Year M/F Ages (1) Gifts to Recipient (2) Cumulative Gifts to Recipient (3) Split Dollar (4) Cum. Split Dollar 1 65/ ,882 14, / ,855 29, / ,819 44, / ,773 59, / ,715 74,44 6 7/ ,311 14,645 88, / ,75 14,561 13, / ,29 14,46 117, / ,944 14, , / ,723 14, , /7 92 4,643 14,8 16, /71 1,88 5,731 13, , /72 1,294 7,25 13,76 187, /73 1,53 8,555 13,47 21, /74 1,87 1,362 13, , /75 2,126 12,488 12, , /76 2,55 14,993 12,495 24, /77 2,945 17,938 12,55 252, /78 3,422 21,36 11, , /79 4,6 25,366 1, , /8 4,7 3,66 1,3 284, /81 5,56 35,626 9,44 294, /82 6,489 42,115 8,511 32, /83 7,415 49,53 7,585 31, /84 8,393 57,923 6,67 317, /85 9,374 67,297 5, , /86 1,499 77,796 4,51 327, /87 11,667 89,463 3,333 33, /88 12,987 12,45 2,13 332, /89 14, , , , ,319 This is an example of a "supplemental" life insurance illustration. In actual presentations, this footnote will refer you to an accompanying "basic" illustration from a specific life insurance company. Split dollar arrangement presumed terminated in year 3. Page 8 of 1

10 Recipient's Net Payment Analysis Net Payment Analysis Year M/F Ages (1) Recipient's Split Dollar (2) Gift from Sponsor (3) Recipient's Split Dollar Net Payment (1)-(2) (4) 's Additional Imputed Gift Valuation 1 65/ / / / / / / / / / / /71 1,88 1, /72 1,294 1, /73 1,53 1, /74 1,87 1, /75 2,126 2, /76 2,55 2, /77 2,945 2, /78 3,422 3, /79 4,6 4, /8 4,7 4, /81 5,56 5, /82 6,489 6, /83 7,415 7, /84 8,393 8, /85 9,374 9, /86 1,499 1, /87 11,667 11, /88 12,987 12, /89 14,231 14, , ,681 This is an example of a "supplemental" life insurance illustration. In actual presentations, this footnote will refer you to an accompanying "basic" illustration from a specific life insurance company. Assuming column (1) offsets the economic benefit for gift valuation, column (4) is this plan's additional imputed gift. (U.S. 38 rate calculation (Table 21 based).) Page 9 of 1

11 Illustration of Policy Values Funding The CVI Interest Rate 8.% Initial Payment 15, Initial 1,5, Year M/F Ages (1) Policy (2) Pre-Tax Policy Cash Flow (3) Year End Accum Value* (4) Year End Cash Value* (5) Death Benefit 1 65/6 15, 2,626 1,5, 2 66/61 15, 17,67 1,5, 3 67/62 15, 33,794 1,5, 4 68/63 15, 51,88 11,188 1,5, 5 69/64 15, 69,884 29,984 1,5, 6 7/65 15, 89,955 52,5 1,5, 7 71/66 15, 11,965 75,55 1,5, 8 72/67 15, 133,639 99,724 1,5, 9 73/68 15, 157, ,818 1,5, 1 74/69 15, 183,35 153,38 1,5, 11 75/7 15, 21,55 183,122 1,5, 12 76/71 15, 238, ,228 1,5, 13 77/72 15, 267, ,179 1,5, 14 78/73 15, 296, ,977 1,5, 15 79/74 15, 328, ,51 1,5, 16 8/75 15, 361, ,964 1,5, 17 81/76 15, 397,36 388,328 1,5, 18 82/77 15, 434, ,257 1,5, 19 83/78 15, 472, ,478 1,5, 2 84/79 15, 512,35 512,35 1,5, 21 85/8 15, 553, ,158 1,5, 22 86/81 15, 596,4 596,4 1,5, 23 87/82 15, 64,799 64,799 1,5, 24 88/83 15, 687, ,534 1,5, 25 89/84 15, 736,77 736,76 1,5, 26 9/85 15, 785, ,987 1,5, 27 91/86 15, 836, ,984 1,5, 28 92/87 15, 889,29 889,29 1,5, 29 93/88 15, 942, ,256 1,5, 3 94/89 15, 996, ,486 1,5, 45, *This is an example of a "supplemental" life insurance illustration. In actual presentations, this footnote will refer you to an accompanying "basic" illustration from a specific life insurance company. Page 1 of 1