All Posts Using Split-Dollar Life Insurance for Business Owners

Guest Contributor: Peter J. Merrick, TEP

Website: EXIT WITH SUCCESS - EXPERT IN CROSS-BORDER RISK

Split-dollar life insurance presents a strategic avenue for business owners to synergize their personal financial needs with that of their businesses. It allows a business and its owner to share the costs and benefits of a life insurance policy, providing mutual advantages.

How Does it Work?

The business and its owner enter a written agreement that details the division of premium costs, cash value, and death benefits. The nature of the benefits can be adjusted based on the business's performance or other predetermined criteria.

1. Economic Benefit Arrangement: Here, the business retains ownership of the policy and shoulders the premium. However, it transfers specific benefits to the business owner, allowing them to designate beneficiaries for a portion of the death benefits.
2. Loan Arrangement: Under this structure, the business owner owns the policy, but the business covers the premium, considering it as a loan to the owner. To safeguard its interests, the business imposes certain collateral assignments on the policy.

Advantages:

For the business owner, a notable perk is having their life insurance premiums financed by the business. The structure might also facilitate tax-free income through policy loans and withdrawals, coupled with the potential for tax-deferred cash value growth. From the business's perspective, it's an avenue to reinvest and strengthen its financial foundation, possibly at a more favourable cost than traditional setups.

Termination:

Upon specific events, like the business owner's retirement or death, the split-dollar plan typically concludes. Depending on the chosen arrangement, the business might recover the cash value, premiums paid, or outstanding loans. The remaining benefits usually transition to the owner's beneficiaries.

Ownership:

In the loan setup, the business owner holds the policy, while in the economic benefit structure, the business does.

Summary:

Split-dollar life insurance can be a game-changer for business owners, allowing them to smartly intertwine their personal and business financial planning. As with any intricate financial strategy, consulting with a tax advisor or attorney is recommended for optimal setup and understanding.

There are two solutions. If you are a professional advising a client who falls into this situation or if you personally have an interest, let's set up a complimentary introductory meeting with Peter J. Merrick by CLICKING HERE.

About the author. Peter J. Merrick, TEP, is a Commentator/Keynote Speaker & Expert in US/ Canadian/International Cross Border and Estate Planning and Insurance & Annuity Planning - Author of The Business Novel - The King of Main Street. To read reviews, please click here.

Who is Peter J. Merrick, CFP, TEP?

Over three decades, Peter specialized in de-risking and saving his clients up to 40% of their wealth that would have otherwise been paid out because of poor planning. These proven solutions effectively shelter income, reduce taxes on income and estates and defer or eliminate tax on investments and creditor-proof assets for domestic and international clients.

Peter is also an author:

Peter has written three comprehensive LexisNexis business, legal, tax, succession and estate planning textbooks. For 18 years, Peter wrote a column for LexisNexis called "The Bottom Line," one of the largest professional tax and accounting publications.?Peter was also a university and college finance and financial planning lecturer for over 12 years.

In 2019, Peter relocated to San Diego, California, from Toronto, Canada. Right now, he sees a number of wealth-saving opportunities resolving long-ignored issues for Canadians in corporate planning, cross-border US and international planning, financial, philanthropic, and estate planning implementation, utilizing Canadian/US Life Insurance and Canadian/US Annuity strategies.

Peter works with high-net-worth individuals and their legal, tax and financial professionals performing Canadian estate freezes and terminal tax planning, as well as those who seek to relocate to the US or have financial interests in the US from places like Canada and other national jurisdictions.

It is absolutely essential that you partner with and work with an expert familiar with the Canadian Income Tax Act, the IRS Tax Code, and US/International Tax Treaties before implementing any strategy in the areas of Canadian estate freezes, terminal tax planning, and cross-border planning.

Let's set up a complimentary introductory meeting with Peter J. Merrick to review your policies by CLICKING HERE.

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