Split Dollar Life Insurance Agreement

Transcription

1 Agreement Document 1562A Access to this document and the LeapLaw web site is provided with the understanding that neither LeapLaw Inc. nor any of the providers of information that appear on the web site is engaged in rendering legal, accounting or other professional services. If you require legal advice or other expert assistance, you agree that you will obtain the services of a competent, professional person and will not rely on information provided on the web site as a substitute for such advice or assistance. Neither the presentation of this document to you nor your receipt of this document creates an attorney-client relationship.

2 Note: This Agreement is drafted for a Director and spouse. SPLIT DOLLAR LIFE INSURANCE AGREEMENT THIS SPLIT DOLLAR LIFE INSURANCE AGREEMENT (the Split Dollar Agreement ) is entered into effective the day of, 20, by and between [COMPANY NAME], a corporation organized under the laws of the State of [STATE] (hereinafter called "Company"), and [OWNER] (hereinafter called "Owner"). WHEREAS, one of the Settlors of the Owner, [NAME] (hereinafter called "Director"), is a valued Director of the Company, and the Company wishes to retain him in its employ; and WHEREAS, as an inducement to Director's continued service to the Company as a Director, and as an additional compensation to him, Company wishes to assist Director with [his or her] personal life insurance program by entering into the within Split Dollar Insurance Agreement with the Owner. NOW, THEREFORE, Company and Owner agree as follows: 1. The life insurance policies with which this Agreement deal are Policy # (hereinafter collectively called the "Policy"), issued by [INSURANCE COMPANY] (hereinafter called "Insurer") on the lives of Director and [his or her] spouse, [NAME] (the "Director's Spouse"), each in the face amount of dollars ($ ). 2. Owner shall be the owner of the Policy, and may exercise all ownership rights granted to the owner thereof by the terms of such Policy. Notwithstanding any other provision hereof or of any form of assignment executed by Owner in connection herewith, it is the express intention of the parties to reserve to Owner all rights in and to the Policy granted to the Owner by the terms of the Policy, including, but not limited to, the right to borrow against the Policy, the right to elect how dividends on the Policy shall be applied, the right to assign the Owner's interest in the Policy, the right to change the beneficiary of the Policy, the right to exercise settlement options, and the right to surrender or cancel the Policy (in whole or in part). The Company shall not have or exercise any right in and to the Policy which could, in any way, endanger, defeat or impair any of the rights of Owner in the Policy. The only rights in and to the Policy granted to the Company herein shall be limited to its security interest in the cash value of the Policy, as defined therein, and its right to receive a portion of the death benefit of the Policy, as hereinafter provided. The Company shall not assign any of its rights in the Policy to anyone other than the Owner (or the Owner's transferee, if the Owner has transferred its rights in the Policy). 3. Premiums on the Policy shall be paid as follows: (a) The Owner may elect to pay part or all of any premium by policy loan or other borrowing or from [his or her] own assets, and shall deliver notice of such election to the Company on or before the premium due date. (b) The Company shall pay all premium amounts not paid by the Owner. 2

3 4. Owner has, contemporaneously herewith, assigned the Policy to the Company as collateral, under the form of Collateral Assignment attached hereto as Exhibit A and made a part hereof, which Assignment gives the Company the limited power to enforce its right to be repaid its cumulative premiums paid, but not prepaid, by realizing on the cash value of such Policy, as therein defined, and on a portion of the death benefit of such Policy. The interest of the Company in and to the Policy shall be specifically limited to the following rights in and to the cash value and to a portion of the death benefit: (a) The right to be repaid its cumulative premiums paid or, if less, the net cash surrender value of the Policy, in the event the Policy is totally surrendered or cancelled by Owner, or the right to receive the surrender proceeds, to the extent of its cumulative premiums paid, in the event the Policy is partially surrendered or cancelled by the Owner, as provided in paragraph 5 below. (b) The right to be repaid its cumulative premiums paid upon the later to occur of the deaths of the Director and the Director's Spouse, as provided in paragraph 6 below. (c) The right to be repaid its cumulative premiums paid or, if less, the net cash surrender value of such Policy, or to receive ownership of such Policy, in the event of the termination of this Agreement, as provided in paragraphs 8 and 9 below. (d) The right to be repaid a portion of its cumulative premiums paid if a Policy loan made by the Owner in any year causes the net cash surrender value of such Policy to be a sum less than the Company's cumulative premiums paid. In such case, the Owner will use a portion of any policy loan proceeds to reduce the cumulative premiums paid by the Company so as to cause the net cash surrender value to be equal to or greater than the Company's cumulative premiums paid. As used in this Agreement, the term "net cash surrender value" means the cash surrender value of the Policy, less the amount of any then existing loans against such Policy obtained by the Owner pursuant to this paragraph. 5. The Owner shall have the sole and exclusive right to surrender or cancel the Policy (in whole or in part), and the Company shall have no right to surrender or cancel the Policy (in whole or in part). In the event of a total or partial surrender or cancellation by the Owner, the Company shall be entitled to receive the then outstanding balance of its cumulative premiums paid hereunder, or, if less, the net cash surrender value of the Policy. 6. Upon the death of the later to die of the Director and the Director's Spouse, the Company shall be entitled to receive a portion of the death benefit provided under the Policy equal to the then outstanding balance of its cumulative premiums paid hereunder. The balance of the death benefit provided under such Policy, if any, shall be paid directly to the beneficiary or beneficiaries designated by the Owner, in the manner and in the amounts provided by the beneficiary designation provision endorsed on such Policy. 3

4 7. This Agreement may be terminated, subject to the provisions of Sections 8 and 9 below, by either party, with or without consent of the other party, by giving notice in writing to the other party. 8. In the event of a termination of this Agreement as provided in Section 7 above, Owner shall have the right to repay to the Company, within sixty (60) days of the date of termination, the then outstanding balance of its cumulative premiums paid hereunder, or, if less, the net cash surrender value of such Policy. Upon receipt of such amount, the Company shall execute an appropriate release of its Collateral Assignment of such Policy. 9. If the Owner fails to repay to the Company the amount specified in paragraph 8 above with respect to the Policy within sixty (60) days of the date of termination of the Agreement, Owner shall execute any and all instruments that may be required to vest ownership of such Policy in the Company. Thereafter, Owner shall have no further interest in such Policy or in this Agreement. 10. The Owner shall have the sole right to borrow against the Policy, and the Company shall have no right to obtain loans against the Policy, directly or indirectly, from the Insurer or any other person, or to pledge or assign the Policy as security for any loan. 11. In the event the Owner shall transfer all of the Owner's interest in the Policy to a transferee, then all of the Owner's interest in the Policy and in this Agreement shall be vested in the transferee, who shall be substituted as a party hereunder, and the Owner shall have no further interest in the Policy or in this Agreement. 12. The Insurer shall be bound only by the provisions of and endorsements on the Policy, and any payments made or action taken by it in accordance therewith shall fully discharge it from all claims, suits and demands of all persons whatsoever. It shall in no way be bound by, or be deemed to have notice of, the provisions of this Agreement. 13. Any dispute or controversy arising under, out of, in connection with or in relation to this agreement shall be determined and settled by arbitration in [CITY, STATE], or such other location as may be agreed to by the parties, pursuant to the Rules of the American Arbitration Association for resolution of commercial disputes. Any award rendered therein shall be final and binding on all parties hereto and judgment may be entered thereon in any court of appropriate jurisdiction. All costs of such arbitration shall be borne equally by the parties. 14. In the event that the Policy lapses because the Company fails to pay any premium amounts to the Insurer as provided in subparagraph b of the preceding paragraph 3, the Company agrees to indemnify the Owner (or the Owner's transferee, if the Owner has transferred its rights in the Policy) for the full face amount of the lapsed insurance. 4

5 15. This Split Dollar Agreement contains the entire understanding and agreement between the parties with respect to the subject matter hereof and shall not be amended, altered or modified, except by a written instrument signed by each of the parties. 16. Any notice, consent or demand required or permitted to be given under the provisions of this Split Dollar Agreement by one party to another shall be in writing, shall be signed by the party giving or making the same, and may be given either by delivering the same to such other party personally, or by mailing the same, by United States Certified mail, postage prepaid, to such party, addressed to his, her, their or its last known address as shown on the records of the Company. The date of mailing shall be deemed the date of such mailed notice, consent or demand. 17. This Agreement shall bind Company, Owner, Owner's successors and transferees, and any Policy beneficiary. 18. This plan is intended to qualify as a life insurance benefit plan as described in Revenue Ruling , C.B This Split Dollar Agreement, and the rights of the parties hereunder, shall be governed by and construed according to the laws of the [STATE]. [The remainder of this page has been intentionally left blank. Signature page follows.] 5

6 IN WITNESS WHEREOF, the parties have executed this Agreement effective the day and year first above written. [COMPANY NAME] By: Its: [Owner] 6