SPLIT-DOLLAR LIFE INSURANCE AGREEMENT (ENDORSEMENT METHOD, EMPLOYER-PAY-ALL, NON-EQUITY)

Transcription

1 Business Insurance SPLIT-DOLLAR LIFE INSURANCE AGREEMENT (ENDORSEMENT METHOD, EMPLOYER-PAY-ALL, NON-EQUITY) For Attorney Use Only. This specimen form may be given to the client's attorney for consideration when requested. It is not adapted to the specific circumstances or objectives of any individual client, nor has it been prepared to meet the legal requirements of any particular state. All legal documents must be prepared only by a licensed attorney. All formalities required under applicable local law should be observed. AMO Documents, published by Pentera Group, Inc. are made available to agents for educational purposes. Under no circumstances should an agent provide sample legal documents to their clients. On occasion a customer's attorney may request sample insurance-related forms or documents. In such situations the agent should provide sample documents directly to the attorney. Agents that provide documents to clients may be engaging in the unauthorized practice of law, as well as assuming other risks. By using the program you are acknowledging you understand that these documents are to be used for your own educational resources or as a resource for attorneys engaged in the practice of law. Caution: In September 2003, the Treasury Department and IRS released final regulations governing the federal income, employment and gift taxation of splitdollar life insurance arrangements [T.D. 9092]. The final regulations apply to (1) new split-dollar life insurance arrangements entered into on and after September 18, 2003, and (2) pre-existing arrangements that are "materially modified" on or after September 18, The final regulations provide some guidance on what actions will and will not be considered material modifications. Caution: IRC Sec. 409A, the regulations thereunder, and Notice may apply to split-dollar agreements in some circumstances. Employer-Owned Life Insurance: In arrangements where an employer will own life insurance on an employee, Notice and Consent requirements must be met to avoid having the death proceeds taxable as ordinary income. See the Notice and Consent Employer-Owned Life Insurance under Other Documents. The guidance provided in IRS Notice [ C.B. 398], including safe harbor and grandfathering provisions, applies to split-dollar life insurance Page 1 of 7

2 arrangements entered into on or before September 17, 2003 (unless they are "materially modified" on or after September 18, 2003). The sample agreement following is for a non-equity, endorsement-method, employer-pay-all, split-dollar arrangement. ***** SPLIT-DOLLAR LIFE INSURANCE AGREEMENT This agreement is made this (day) of (month), (year), by and between (name of employer), hereinafter referred to as "Employer," and (name of employee), hereinafter referred to as "Insured." WHEREAS, Insured is and has been employed by Employer and has performed valuable services; and WHEREAS, Employer desires that Insured continue to provide such services; and WHEREAS, the parties desire to set up a split-dollar life insurance arrangement in order to provide life insurance protection for the mutual benefit of the parties; NOW, THEREFORE, in consideration of the premises, and other good and valuable consideration, the parties agree that: ARTICLE I PURCHASE OF LIFE INSURANCE Employer shall apply for and purchase a policy of life insurance from the (name of) Life Insurance Company on the life of Insured in the initial face amount of $. The life insurance policy shall be owned by Employer. Page 2 of 7

3 ARTICLE II PAYMENT OF PREMIUMS A. Employer-Pay-All Plan. Premiums sufficient to keep in force the life insurance policy referred to in Article I shall be paid by Employer. Employer's premium payments shall not cause the policy to be treated as a Modified Endowment Contract for federal income tax purposes. B. Premium Payment by Insured or Designee. If Employer fails to pay the policy premiums as specified in Article II.A. above, then Insured or (his or her) designee may assume this obligation. If such payments are made, the policy rights shall be altered as described in Article VI.A. below. C. The parties intend that this arrangement shall be subject to the "economic benefit regime" of Treasury Regulation (d)-(g) for federal income tax purposes. The language in this agreement shall be interpreted accordingly. ARTICLE III EMPLOYER'S RIGHTS AND DUTIES Employer and its successors and assigns shall own the policy and shall have all rights of ownership in the policy. These rights may be exercised without the consent of any other party, except as otherwise provided herein. Employer shall have the following specific rights in the policy, which rights may be exercised without the consent of any other party: A. The right to make and receive policy loans under the policy loan provisions of the policy, up to but not in excess of the Employer's portion of the policy as defined in Article VII.A., as of the date of the loan. B. The right to receive out of any amount payable on account of the death of the Insured, an amount up to but not in excess of the amount described in Article VII.A. C. The right to convey its interest in the policy, after first offering this interest to Insured or (his or her) designee. Employer hereby covenants with Insured that it will not exercise any rights in the policy in any way that might impair or defeat the rights and interests of Insured, (his or her) designee, or the beneficiary under the policy. Page 3 of 7

4 ARTICLE IV BENEFICIARY DESIGNATION Insured or (his or her) designee shall have the right and power to designate a beneficiary or beneficiaries to receive proceeds payable on Insured's death, but subject to any right or interest Employer may have in such proceeds as provided in Article VII.A. of this agreement. This beneficiary designation shall not be altered without the consent of Insured or (his or her) designee. Any selection or change of beneficiary must be made in writing and filed with the (name of) Life Insurance Company. ARTICLE V POLICY CHANGES A. Death Benefit Option Changes. Neither party shall change the policy death benefit option without the written consent of the other party. B. Face Amount Changes. Neither party shall increase or decrease the face amount of the policy without the written consent of the other party. ARTICLE VI DEATH BENEFIT The parties agree that the beneficiary designation under the policy shall provide that upon the death of Insured the proceeds of the policy shall be paid as follows: A. Employer's Portion of Death Benefit. Employer shall be paid an amount equal to the greater of (1) the total premiums advanced on the policy by Employer as of the date of death of the Insured, or (2) the total cash value on the Insured's date of death, provided, however, that the greater amount shall be reduced by any policy loans to Employer outstanding as of the date of death, and by any partial cash withdrawals made by Employer. Prior to the payment of the aforesaid amount to Employer, the total amount of any premiums paid by Insured or (his or her) designee under the provisions of Article II.B. above shall be paid to Insured's beneficiary. B. Insured's Portion of Death Benefit. The balance of any amount payable on account of the death of Insured, not paid pursuant to Article VII.A. above, shall be paid to the beneficiary selected by Insured or (his or her) designee. Page 4 of 7

5 ARTICLE VII ADDITIONAL POLICY BENEFITS AND RIDERS Employer agrees that it will cooperate with Insured or (his or her) designee in securing such additional riders to the policy on such terms as may be mutually acceptable to Employer and to Insured or (his or her) designee. The parties agree to comply with such requirements as may be imposed by (name of) Life Insurance Company to qualify for benefits from any such riders. ARTICLE VIII ASSIGNMENT Either party may convey rights, interests and obligations under this agreement, provided that any conveyance shall be made subject to the terms of this agreement. This agreement, and any amendments to it, shall be binding upon Employer and Insured, their heirs, legal representatives, successors and assigns. ARTICLE IX AMENDMENTS This agreement may be altered, amended or modified, by a written agreement signed by Employer and Insured or (his or her) designee. ARTICLE X TERMINATION This agreement may be terminated by either party on thirty (30) days written notice to the other party. In the event of termination of this agreement, Insured or (his or her) designee shall have the right to purchase the policy from Employer within thirty (30) days after such termination. The purchase price shall be equal to Employer's death benefit as described in Article VII.A. as of the date of purchase. ARTICLE XI INSURANCE COMPANY NOT A PARTY TO AGREEMENT The (name of) Life Insurance Company is not a party to this agreement. Performance of its contractual obligations in accordance with policy provisions shall fully discharge (name of) Life Insurance Company of all liability. Page 5 of 7

6 ARTICLE XII GOVERNING LAW The law of the State (or Commonwealth) of (name) shall govern this agreement. ARTICLE XIII ENTIRE AGREEMENT This agreement represents the final and entire agreement between the parties, and supersedes all prior or contemporaneous agreements, express or implied, written or unwritten, concerning the subject matter herein. IN WITNESS WHEREOF, the parties have set their hands and seals hereunto on the day and year first above written, the Employer by its duly authorized officer. EMPLOYER BY: (typed name of officer) INSURED (typed name of insured employee) ***** Page 6 of 7

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