The Superfunding technique is used with the Loan-Based Private Split Dollar illustration module which is part of the InsMark Loan-Based Split Dollar System (which also includes the Loan-Based Split Dollar illustration module for plans cast between employers and executives). Superfunding involves making a single loan to the policyowner (an irrevocable trust) which is deposited into a Premium Reserve Account from which the trustee each year withdraws the annual premium for the policy. The advantage of this strategy is to lock down the current low, long-term Applicable Federal Rate for the life of the insureds without resorting to use of a single premium which would have the negative result of producing a modified endowment contract (MEC) thereby eliminating the option for the trustee to access policy cash values on a tax favored basis for loan repayment or for distribution to heirs.
Superfunding Example Using Indexed Survivor Universal Life
(Survivor universal life and whole life also illustrate well with this concept.)
- Insureds: Jerry and Janet Grant
- Ages: 65/60
- Policyowner: Grant Family Trust
- Policy Face Amount: $12 million
- Illustrated Premium: $706,649 (paid for 5 Years)
- Number of Annual Gift Exemptions: 6 (3 children)
- Premium Reserve Account Tax Exempt Interest Rate Assumption: 3%
- Long-Term Applicable Federal Rate: 2.52% (February 2013)
- Years to Illustrate: 35
Review the case below:
Loan-Based Private Split Dollar (Indexed Survivor Universal Life)
For those licensed for the Loan-Based Split Dollar System, click here to load the Loan-Based Private Split Dollar Workbook.
Use the Superfunding Calculator™ to see how to fund a trust-owned policy far beyond your wildest imagination --while incurring no gift taxes.