What is a Split Dollar Program?

A split dollar arrangement is a plan in which a life insurance policy’s premium, cash values, and death benefit are split between two parties.  A split dollar arrangement can be helpful in estate liquidity planning to minimize income, estate, and gift taxes.  This type of plan has been used for years to help individuals with the funding of large premiums, and/or to reduce the cash flow required to fund a much-needed life insurance policy.

These types of plans have also been used by Pass through organizations and tax- exempt corporations as an executive benefit to encourage employees to remain with the company.  A properly structured Split Dollar plan still remains a viable and important executive retention planning approach.

History of Split Dollar

Generally, under a split dollar plan, a permanent life insurance policy’s death benefit and cash values are split between the owner and non-owner of the life insurance contract.  Typically, one party has the cash flow to fund the majority of the policy premiums.  These arrangements have been around since 1964 as a way for one party to assist another party with the purchase of life insurance. However as the usage of these programs changed over the years to also provide significant living benefits through cash accumulation the IRS issued changes to Split Dollar rules in 2003 now known as Final Loan Regime Split Dollar rules.