|
Main
| Sample Cases & Output | Buy
Features:
Loan-Based Split Dollar and Loan-Based Private Split
Dollar
Important Note: All aspects
of Loan-Based Split Dollar and Loan-Based Private Split Dollar must
be reviewed and approved by a client’s legal and tax counsel before
the arrangement is utilized for any purpose.
Loan-Based Split Dollar(“LB-SD”) (cast between
Employers and Executives)
- LB-SD complies with the Final Split Dollar Regulations issued in
September 2003.
- LB-SD illustration data is obtained through an electronic link to
insurance company’s illustration systems via InsMark’s
proprietary Button File technology.
- System illustrates new equity-type plans as well as the conversion
of in-force equity split dollar plans (including the conversion
of prior Employer split dollar advances to loans).
- LB-SD illustrates loans from Employer to covered Executive for policy
premiums.
-
LB-SD illustrates long-term loans (more than
9 years).
Note: Upon specific approval from the licensed insurance
company, LB-SD can be configured to illustrate demand loans.
- LB-SD will not produce an illustration dated in any month in which
the user has not first visited InsMark’s website to download
the Applicable Federal Rates in effect for that month.
- LB-SD can illustrate a single loan to the Executive placed in a
Premium Reserve Account to be used to “feed” a policy
with sufficient annual premiums to avoid MEC classification. This
allows a favorable long-term Applicable Federal Rate to be locked
down for the term of the loan.
Note: The Premium Reserve Account can be illustrated as a taxable
or tax exempt account or a period-certain single premium immediate
annuity -- with the latter generating an additional sale.
- LB-SD can illustrate bonuses from Employer to Executive to provide
funds for loan interest using a single bonus, gross-up bonus, or design-your-own
bonus. LB-SD alternatively can illustrate some (or all) loan interest
due the Employer paid by policy loan. LB-SD can also illustrate repayment
of the Employer’s loans from policy loans. The user can designate
any combination of these features.
Note: Even if offset by a bonus, so long as loan interest due
to the Employer is actually paid by the Executive (not deemed paid
as is the case with a below-market loan), deemed dividend distributions
are avoided for a participating Shareholder-Executive.
- Illustrations are accompanied by a multi-page Preface that is illustration-specific
in its details.
- LB-SD presents numerical data in Summary and Employer/Executive-specific
formats.
- Special numerical columns in the reports can be included that illustrate
policy loans funding retirement income for the Executive.
- LB-SD contains InsMark’s unique InsScribe®
System which automatically generates illustration-specific Flow Charts
and Graphs.
- LB-SD illustrates Employer’s year-by-year cumulative Charge
to Earnings.
- LB-SD includes a comprehensive PowerPoint show useful for producer
and adviser education.
- LB-SD includes a comprehensive electronic Guide to Marketing.
- LB-SD blocks the illustration of a modified endowment contract as
a MEC securing a loan produces taxable income to the policy owner
to the extent of any gain in the policy (realized or unrealized).
Loan-Based Private Split Dollar (“LB-PSD”) (cast
between parents and irrevocable trusts)
- LB-PSD complies with the Final Split Dollar Regulations issued in
September 2003.
- LB-PSD obtains its data through an electronic link to insurance
company’s illustration systems via InsMark’s exclusive
Button File.
- LB-PSD illustrates loans for policy premiums from parent (typically)
to an “intentionally defective” irrevocable life insurance
trust.
- With LB-PSD, gifts to the trust are scheduled to offset any loan
interest due by the trust.
Note: The lender is assumed to be the grantor of the trust
and, due to grantor trust rules, there is no income tax due by the
lender on such loan interest received, i.e., the Lender and the trust
are a single income tax entity. (IRC Section 671 and 675, IRS Reg.
1.671-2(c) and Rev. Rul. 85-13.) Thus, if gifts for loan interest
are made, they are returned at once as non-taxable loan interest.
- LB-PSD can illustrate accrued loan interest. This is particularly
valuable if gifts needed for loan interest exceed the amount of available
annual gift exclusions and/or lifetime gift exemptions.
- LB-PSD illustrates long-term loans (more than 9 years).
Note: As discussed in the report, upon specific approval from
the licensed insurance company, the illustration module can be configured
to interest bearing demand loans.
- LB-PSD will not produce an illustration dated in any month in which
the user has not first visited InsMark’s website to download
the Applicable Federal Rates in effect for that month.
- LB-PSD illustrates loan interest at least at the Applicable Federal
Rate established under IRC Sections 7872 and 1274(d).
Note:Use of interest-bearing loans (as opposed to interest-free
loans) eliminates any impact from the Original Issue Discount (“OID”)
rules of IRC Sections 1271-1275. When applicable, these rules produce
a gift of future interest to the trust of the difference
between the face amount of each loan and the present value of that
loan discounted at the Applicable Federal Rate. Frequently, this
can result in loss of a portion of the lifetime gift exemption equal
to 60% to 70% of each loan. In large cases, it can trigger gift
taxes.
Note:The policy involved in estate planning transactions between
parents and a trust is typically a survivor life policy. One serious
shortfall of a survivor life policy subject to a split dollar arrangement
is soaring economic benefit rates at advanced ages -- particularly
after one of the insureds dies. The Applicable Federal Rate is unaffected
by this condition.
- LB-PSD can illustrate a single loan to the trust placed in a Premium
Reserve Account to be used to “feed” a policy with sufficient
annual premiums to avoid MEC classification. This allows a long-term
Applicable Federal Rate to be locked down for the term of the loan.
Note: The Premium Reserve Account can be illustrated as a taxable
or tax exempt account or a period-certain single premium immediate
annuity – with the latter generating an additional sale.
-
LB-PSD illustrations are accompanied by a multi-page
Preface that is illustration-specific in its details.
- LB-PSD presents numerical data in Summary and Lender/Trust-specific
formats.
-
Special numerical columns in the LB-PSD reports
can be included that illustrate additional policy loans funding
loan interest payments or loan repayments.
- LB-PSD contains InsMark’s unique InsScribe®
System which automatically generates illustration-specific Flow Charts
and Graphs.
-
LB-PSD summarizes the effect on the parent’s
overall gifting limits.
- LB-PSD includes a comprehensive PowerPoint show useful for producer
and adviser education.
- LB-PSD includes a comprehensive electronic Guide to Marketing.
- LB-PSD includes significant specimen documents.
Note: A high-end sister product to the InsMark Loan-Based
Split Dollar System is the separately licensed InsMark Loan-Based
Deferred Compensation System (cast between Employers and Executives)
using loan-based split dollar principles in which the covered
Executive uses a compensation adjustment to provide the Employer
with all (or part of) the funds that the Employer loans to the
Executive. The results are dramatic in that ordinary pre-retirement
employment income is traded for tax free retirement income through
policy loans. In addition, a severance arrangement is included
in the illustrations showing a repayment of the compensation adjustment
taken by the Executive in the event of termination of employment,
retirement, or death. Specimen severance agreements are included
as part of plan documentation including a version for executives
of tax exempt organizations designed to comply with provisions
of IRC Sec. 457(f) regarding constructive receipt. Other than
this additional capacity, the illustration, documentation, and
marketing support aspects of Loan-Based Deferred Compensation
are similar to Loan-Based Split Dollar.
The InsMark Loan-Based Deferred Compensation System complies
with the Final Split Dollar Regulations issued in September 2003.
A report similar to this one is available that details the features
of the Loan-Based Deferred Compensation System.
Important Notes
-
All aspects of the InsMark Loan-Based Split
Dollar System and the InsMark Loan-Based Deferred Compensation
System must be reviewed and approved by a client’s legal
and tax counsel before they are utilized for any purpose.
-
Due to the Sarbanes-Oxley Act of 2002, loan-funded
life insurance plans cannot be used by public companies. For
the present, only private companies should consider using loan-funded
arrangements.
[Rev. 5/27/05]
Sample Cases and Output 
|
