US Corporate-Owned Life Insurance (COLI): An Overview

Guest Contributor: Peter J. Merrick, TEP

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

Corporate-Owned Life Insurance (COLI), as its name suggests, refers to life insurance policies bought by companies for their own use. These policies can differ fundamentally from standard group life insurance policies, which are primarily designed to protect employees and their families. Instead, COLI is structured to meet various corporate objectives.

Key Features and Uses of COLI:

• Beneficiary: The company is either wholly or partially a beneficiary of the policy, with an employee, owner, or group of employees as the insured.
• Purpose: Companies might use COLI to fund nonqualified plans, like a split-dollar life insurance policy. It allows the firm to recoup its premium cost by naming itself as the beneficiary for that premium amount, with the rest going to the insured employee.
• Other Forms: COLI can be applied for key person insurance, which pays the company a death benefit when a vital employee passes away. It's also used in buy-sell agreements, where the death benefit can fund the buyout of a deceased partner or owner's business shares. Moreover, COLI can be employed to recover costs related to certain employee benefits.

Tax Implications: The tax rules around COLI can be intricate. To ensure their tax-advantaged status:

• COLI policies should only cover the top one-third of the highest-paid employees.
• Employees must receive written notifications about their inclusion in a COLI policy.
• There are a few exceptions where notifications aren't necessary for a tax-free death benefit, such as for recently employed or for certain high-compensated employees.

While COLI serves multiple corporate objectives, its complex nature, especially concerning tax rules, necessitates a deep understanding and proper guidance.

If you would like to discuss strategies and explore opportunities to protect your US situs assets from US estate taxes, 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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