May 1, 2010 12:00 PM

They're not dead; they're just different

By Lawrence Brody & Richard L. Harris

For estate planning using life insurance, and especially for large premium cases, split dollar offers an attractive method for funding the premiums with favorable gifting consequences. Before 2003, the rules for split dollar were a collection of revenue rulings and private letter rulings. But, beginning with Notice 2001-10 and concluding with published Treasury Regulations Sections 1.61-22 and 1.7872-15 and Revenue Ruling 2003-105, the Treasury and the Internal Revenue Service changed the landscape for split-dollar arrangements. The regulations ended “equity” split-dollar arrangements as of Sept. 17, 2003 (that is, those that allowed for the supposed tax-free transfer of cash value from the premium-payor to the policy owner); added loan split-dollar arrangements; and potentially ended the use of the insurance company's “published” term rates for arrangements entered into after Sept. 17, 2003 and for arrangements “materially modified” after that date. Because “equity” split-dollar arrangements were no longer viable and the new regulations were long and complicated, many estate-planning practitioners gave up on using split-dollar arrangements to fund insurance premiums while reducing or ending the gift tax on the premiums paid for the policy.

But, split-dollar arrangements are still very much alive and especially useful where large premiums are involved. The new regulations provide a clear road map as to the structure. Here's what you should do to use split dollar successfully and creatively in a private setting; that is, one in which the arrangement is between an individual and either an irrevocable life insurance trust (ILIT) or another individual.

Topics of Interest

Estate Tax	Donor Advised Funds
GSTs	Family Offices
Private Foundations	Life Insurance
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Topics of Interest

Estate Tax	Donor Advised Funds
GSTs	Family Offices
Private Foundations	Life Insurance
2010 Tax Act News	Industry Trends Surveys

E-Newsletter Signup

2011 Trust Glossary

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50 Years Ago This Month

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50 years ago, in May 1962, we featured articles such as: "Future of Canadian Trusteeship" by Arthur H. Mingay", "Training Trust Employees" by Ian M. Marr, "What is a Trust Officer?" by Eric J. Brown, and "Selling Services" by Donald I. Webb.

Conrad Teitell's Guide to Tax Benefits For Charitable Gifts

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