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Traditional Split Dollar Agreement

Unlike many other ancillary benefit programs, fractional dollar life insurance plans were not based on legal or judicial law. Instead, the tax consequences of life insurance plans in 1964 were largely controlled by an income rule published by the 1964 IRS.1 Although an income rule is quite low, dollar insurance has become such a popular concept that virtually all employers have adopted a form of dollar insurance for one or more of its employees. A non-capital agreement is when a worker`s only benefit is a part of term life insurance. In a dollar split plan, the employee receives the concept of life insurance coverage and also has an interest in the cash value of insurance. Plans may allow the employee to borrow or withdraw some of the cash value. Many of the dollar splitting strategies developed prior to the IRS position change will simply not work as originally planned. Individuals and businesses that are currently parties to a fractional dollar life insurance contract should have the agreement reviewed as soon as possible to determine the impact of the amendments on that particular agreement. For some, the new tax rules will have a relatively small impact, for others, the new tax rules will mean the end or, at the very least, a substantial change in the dollar agreement – perhaps before January 1, 2004, the deadline set by the IRS to terminate or modify certain plans without adverse tax consequences. The agreement should include, among other things, that one dollar-to-2000 life insurance can have many benefits. However, the flexibility and wide range of options that could be included in the agreements can make them difficult to understand. If the employee meets the duration and requirements of the agreement, all restrictions under the loan agreement are lifted or ownership of the policy is transferred to the worker as part of the economic performance agreement. A dollar splitting plan begins with the signing of a contract by the employer and the employee. While the details of the contract may vary, each plan describes the amount each person pays for the life insurance premium and who is entitled to cash in the benefits of the policy.


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