Non-Equity Collateral Assignment Split Dollar for Estate Liquidity

Transcription

1 Non-Equity Collateral Assignment Split Dollar for Estate Liquidity Using Life Insurance Presented by <Insurance Professional's Name> <Insurance Professional's Company> <Securities Offered Through> <Insurance Professional's Address> <Insurance Professional's Telephone Number> <Insurance Professional's State Insurance License> April 2010 VLCM-OC of 18

2 As an Employer, Attracting, Retaining, & Rewarding Key Executives is a Top Priority 2 of 18

3 You Look to Executive Benefits to Give You an Edge But.. 3 of 18

4 Many Top Executives Need More Life Insurance Protection 4 of 18

5 Non-Equity Collateral Assignment Split Dollar for Estate Liquidity Let Me Show You How This Strategy May Help Meet Your and Your Executive s Needs 5 of 18

6 What is Split Dollar? An arrangement between an employer and executive to share premium payments and benefits of a life insurance policy 6 of 18

7 How Does the Split Dollar Arrangement Work? Employer Individual or Irrevocable Life Insurance Trust (ILIT) Tax on cost of current life insurance protection Premiums Pays the current cost of life insurance Cash Value Net Amount at Risk Ownership of Cash Value 7 of 18

8 What is it? 8 of 18

9 Why Would You Want to Use the Non-Equity Collateral Assignment Split Dollar for Estate Liquidity Arrangement? 9 of 18

10 The Strategy ILIT purchases life insurance policy on you or on both you and your spouse Portion of the death benefit proceeds will be kept out of both your and your spouse s estate* Employer pays all or a majority of the premiums and is assigned the policy cash value If you are a majority shareholder, the Employer/Corporation is given a restricted collateral assignment ILIT retains the death benefit in excess of the amount owed to the employer *As of January 1, 2010, the federal estate tax is repealed until December 31, Also, over the same time period, the rules regarding step-up in basis for property transferred at death were replaced with a modified carryover basis at death rule. Congress continues to consider legislation that, if passed, may change current federal estate tax law. Please consult with your tax and legal advisors as to what effect the repeal of federal estate taxes in 2010 and their reinstatement in 2011, or any new federal estate tax legislation, may have on your estate plans. 10 of 18

11 Let s See How This Works Employer/Corporation Life Insurance Owned by an ILIT Executive Heirs 11 of 18

12 Premium Options 1 2 ILIT pays premiums equal to reportable economic benefit (REB)* on its portion of the death benefit Employer will pay all premiums due Employer will pay remainder of premiums ILIT will pay no premiums *The tax value of the cost of current life insurance protection provided to the Executive is known as the reportable economic benefit ( REB ). Treas. Reg.Sec (d)(1). 12 of 18

13 Rollout Upon termination of the split dollar arrangement, ILIT will pay portion collaterally assigned to employer If ILIT has no other assets than the life insurance policy, rollout may cause lapse of policy 13 of 18

14 Rollout Strategies Pre-fund the ILIT Promissory note Grantor Retained Annuity Trust ( GRAT ) 14 of 18

15 Advantages For The Employer For The Executive Increases loyalty and productivity Custom-designed to meet their individual needs Generally requires no IRS approval Can be reimbursed its total premium outlay by withdrawing it from the cash value Can provide them with pre and post retirement life insurance protection at a reasonable cost 15 of 18

16 Disadvantages For The Employer For The Executive Premiums are not deductible to the Employer No cost basis in the policy Payment of premiums by the Executive equal to the REB is taxable to the Employer Death benefit is paid to the Executive s heirs at death, not to the Employer REB will increase as the Executive gets older. 16 of 18

17 Consider the Non-Equity Collateral Assignment Split Dollar for Estate Liquidity Arrangement if You Want estate tax-free death benefit proceeds* Want to minimize gift element to REB** Can purchase necessary life insurance coverage without utilizing exemption amount or paying gift taxes 17 of 18

18 This material is not intended to be used, nor can it be used by any taxpayer, for the purpose of avoiding U.S. federal, state or local tax penalties. This material is written to support the promotion or marketing of the transaction(s) or matter(s) addressed by this material. Pacific Life, its distributors and their respective representatives do not provide tax, accounting or legal advice. Any taxpayer should seek advice based on the taxpayer s particular circumstances from an independent tax advisor. Pacific Life refers to Pacific Life Insurance Company and its affiliates, including Pacific Life & Annuity Company. Insurance products are issued by Pacific Life Insurance Company in all states except New York, and in New York by Pacific Life & Annuity Company. Product availability and features may vary by state. Each company is solely responsible for the financial obligations accruing under the products it issues. Product and rider guarantees are backed by the financial strength and claims-paying ability of the issuing company and do not protect the value of the variable investment options. Variable insurance products are distributed by Pacific Select Distributors, Inc. (member FINRA & SIPC), a subsidiary of Pacific Life Insurance Company, and are available through licensed third-party broker-dealers. Pacific Life s individual life insurance products are marketed exclusively through independent third-party insurance professionals which may include bank-affiliated entities. Investment and Insurance Products: Not a Deposit Not FDIC Insured Not Insured by any Federal Government Agency No Bank Guarantee May Lose Value VLCM-OC-295 Pacific Life Insurance Company Newport Beach, CA (800) Pacific Life & Annuity Company Newport Beach, CA (888) of 18