Like it's sister strategy the Split Dollar Plan, a Reverse Split Dollar plan can also attract and help retain key personnel.
It provides special, discriminatory benefits suited to the needs of individual executives and the corporation...with a slightly different twist.
Introducing The Reverse Split Dollar
So far you learned that Executive Benefit Packages basically come in four basic packages, the 162 Executive Bonus, The Split Dollar and now we're introducing you to the third strategy Reverse Split Dollar.
The common denominator that all these strategies have is the purpose of providing extra benefits to key personnel who mean the most to the bottom line productivity of the company.
The Reverse Split Dollar Strategy is very much like the Split Dollar Plan, except under this arrangement, the employer owns all or part of the "at-risk" element of an insurance policy, with the employee owning the cash value. The "at-risk" element is the difference between the cash value of the policy and the total death benefit.
Like the previous strategies, there can be many variations of this type of plan. However, the bottom line objective is usually to provide a source of tax-free retirement benefits to the key person/owner/shareholder.
The company enters into an agreement with the key employee or employees. Each respective party collaterally assigns or endorses over a portion of the death benefit to the company (this will indemnify the company against the potential loss of its key personnel).
The corporation pays the premium - or a 'split' thereof - into a cash rich insurance policy covering the key executive. The corporation also pays premiums equal to the imputed economic benefit (PS58 costs), which is usually minimal at best. (Variable Life plans can be an effective contract to use under these circumstances. To learn more about Variable Life follow this link.). To offset this, the company typically pays a bonus to the key person in an amount equal to the employee's premium share.
In the event of the employee's premature death, his/her heirs and the corporation receive their designated share of the death benefit proceeds.
At retirement, the key person terminates the agreement with the corporation and begins receiving tax-free income from the policy via loans and withdrawals (IRC Section 7702).
Benefits to the Employer
At Fielder Financial Management, Ltd. we provide the following services:
Action To Take
Click HERE to obtain Reverse Split Dollar information
For Faster Service Call 1-800-480-7526
Copyright © 1998
Fielder Financial Management, LTD.
All Rights Reserved.
Securities and investment advisory services offered
through Girard Securities, Inc. member FINRA, SIPC.
Fielder Financial Management, Ltd. not affiliated with Girard Securities, Inc. Mark Fielder, OSJ, Registered Principal. CA. Insurance Lic. # 0690576.
Disclosure: For more complete information about variable life, including charges and expenses, obtain a prospectus by calling 1-800-480-7526. Read it carefully before you invest or send money. Investment return and principal value of an investment will fluctuate. An investor's units, when redeemed, may be worth more or less than their original investment. Consult your tax advisor.