The recent Estate of Cahill tax court case gives us a glimpse into the court’s view of intergeneration split dollar arrangements (GSD). In particular, the court focused on, among other things, the valuation of the loan repayment for estate tax purposes, as well as the appearance of the transaction as a vehicle for below market transfers to family members. Although the tax court did not issue a summary judgement and the case will now move to trial for a decision, the comments of the tax court are telling.
For many years Premium Financing was used by the Property & Casualty industry to allow employers to finance hefty commercial liability premiums. Fast forward to the last two decades and Premium Financing has evolved to fund a client’s large life insurance needs.
Premium Financing refers to the funding of premiums through a third-party lender, like a bank.
Clients who need a large life insurance policy to create liquidity for estate planning, wealth transfer or business succession may consider establishing a loan for the annual premiums through a commercial lender. This type of loan is similar to other loans: the arrangement requires approvals from both the bank and the insurance company issuing the policy, a fair market rate of interest is charged, and collateral in the form of the life insurance policy and additional personal assets must be posted.
Both business owners and executives can benefit from non-qualified benefit plans. When considering which options make the most sense, the questions revolve around:
Business owners can use life insurance to protect their businesses and provide important benefits to their employees. Without proper planning and funding, many businesses fail to continue to the next generation.
Here are 4 ways life insurance is used in business planning:
LTC in the News
The word is spreading. Major news outlets are letting the American people know the importance of long-term care planning. Are you? Here are a few recent third-party articles.
- ThinkAdvisor.com – Widowed Sisters Are Doing It for Themselves (But They Still Need Your Advice)
- AALTCI.org – It’s Harder To Health Qualify For Long-Term Care Insurance, Start Earlier
- SeniorsMatter.com – Normal Memory Loss with Aging: When Should You Worry?
Following the 2017 Tax Act, many advisors have asked how to respond to clients who say that there is no urgency in planning given the tax changes. To address this lack of urgency, consider the following:
- the non-tax needs of the family–including liquidity to equalize gifts among heirs,
- the preference heirs may have to buy each other out of unwanted assets, and
- the desire to ensure long-term care for a special needs family member.