The Basics of Split Dollar

Situation: All too often when I get a call from a financial advisor contemplating an executive benefit arrangement using life insurance s/he is often contemplating either a Deferred Compensation/SERP arrangement with a delayed business tax-deduction and maximum golden handcuff, or some form of a Section 162 Executive Bonus/REBA Arrangement with an immediate business income tax deduction and no or minimal golden handcuff. Financial advisors rarely mention Split Dollar. This is unfortunate because for business owners contemplating establishing an executive benefit arrangement to retain, reward, or recruit key employees, consideration of Split
Dollar may have relevance today due to an increased desire to keep money in the business or connected to the business because of the uncertain tax and economic environment.

When I describe some of the ways Split Dollar can be structured, I’m finding more financial advisors and their business clients interested in establishing one of its many forms. Part of the reason Split Dollar has been somewhat off to the side in this arena is because of its perceived complexity. Some of the complexity is attributable to the many ways it can be designed and used. Another reason for its lack of use is a general unfamiliar understanding of Split Dollar since the enactment of regulations. This Counselor’s Corner will review the basic forms of Split Dollar arrangements.

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