Private Split Dollar Life Insurance

Katarinna McBride (partner, Beermann Swerdlove, LLP, Chicago, Illinois) has recently published her article entitled Passing the Buck: Private Split-Dollar for Every Vocabulary, 97 Ill. B.J. 262 (2009).

Here is an excerpt from her article:

Estate planners have designed several methods to help clients avoid or minimize gift tax. The irrevocable life insurance trust is one way to accomplish both goals. When properly implemented, contributions to the insurance trust have minimum gift tax implications and the death benefit passes free of estate tax and generation-skipping tax.

For larger policies that require larger premiums, planners have advised families on the use of private split-dollar arrangements.

But split-dollar planning lost momentum in 2003 when the Internal revenue Service (Service) tightened the rules. The final regulations were difficult to understand and had more interpretations than Circular 230.

Recently, the Service has been generous in blessing various private split-dollar arrangements. Despite the complexity of the regulations, split dollar can still be used to provide premiums for large insurance policies in a tax-efficient manner.

It is now worth revisiting private split-dollar arrangements to see if this technique can be retooled. But the focus here is on private split-dollar arrangements in which the parties are family members and an insurance trust, unlike common split-dollar arrangements in which a business is also a party.