Now is the Time to Review Your Split Dollar Life Insurance Policy

The IRS recently issued its final regulations on split dollar life insurance plans. The rules are complicated and dictate that all plans be reviewed to allow time to decide how to proceed given the new methods promulgated to tax these plan benefits. An in-depth analysis of employer provided and/or donor provided (if you have a life insurance trust) split dollar life insurance arrangement is required.

Decisions need to be made AND implemented by December 31, 2003. The window of opportunity is shrinking as you will need to gather the necessary documentation, choose a course of action and implement your plan before year end.

To assist you with this analysis, a review the agreements covering the insurance arrangement between employer and employee, corporation and shareholder or donor and donee (if a life insurance trust is involved) would be necessary. Copies of the insurance policy (ies) and the most recent statement summarizing death benefit in force, cash value and a record of all premiums paid since the coverage started which you will have to request form the agent or carrier.

There are non-tax and tax reasons for undertaking this review. From a non-tax perspective this is a good time to evaluate the following:

• The insurance coverage adequacy as part of your overall financial plan;

• The investment performance of the policy;

• The cost effectiveness of the coverage; and

• Your ability to obtain new coverage given your current health

From a tax perspective you would need to answer and assess the following questions:

• Does a tax free transfer of the policy to you prior to 12/31/2003 makes sense?

• Will modifications or elections with respect to the plan can ease the burden of current taxation of plan benefits in 2004 and beyond?

• Will the tax costs of a policy transfer after 12/31/2003 justify keeping the plan in place?

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