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Split-dollar arrangements can be effective solutions when an employer wants to offer incentives or deferred compensation to its key executives when cost is an issue. The employer and key executive can use a cash value life insurance policy where the policy ownership is split in one or more ways, cash value, premium, or death benefit. The key benefit is that a highly taxable portion of the compensation is replaced by a tax efficient life insurance asset that provides cash accumulation and death benefit.

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Tax-exempt organizations, including colleges, hospitals, and other nonprofits, often face challenges in attracting and retaining key talent because they typically cannot match the executive retirement benefits provided by for-profit companies.

These organizations can (and often do) use split-dollar life insurance for executive retirement benefits due to the following several advantages:

• It bypasses 457 or 4960 rules.

• It offers maximum flexibility, including flexible vesting.

• The executive owns the policy.

• The executive controls investment choices.

• Provides favorable accounting for the tax-exempt organization.

• Potential tax-free income from the policy.

 

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For business owners, life insurance is more than protection — it's a planning tool. Split dollar arrangements allow a privately held business to fund retirement benefits for its owner-operators in a tax-efficient structure that sits outside of traditional retirement plans.

Business owners can use split dollar life insurance to achieve the following advantages:

• Accumulates cash value inside a life insurance policy on a tax-advantaged basis

• Retirement income can be accessed tax-free through policy loans and withdrawals

• Assets remain outside of the business, protected from business creditors

• Flexible structure — the arrangement can be tailored to the owner's timeline and goals

• Death benefit provides protection during the accumulation phase

• Can be coordinated with shareholder agreements and succession planning

 

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For individuals and businesses with ties to both the United States and Canada, insurance planning requires a level of expertise that most advisors simply don't have. Different tax regimes, residency rules, and regulatory environments on each side of the border can create problems — or opportunities — depending on how planning is structured.

Eagle Crest has Canadian roots and extensive experience navigating cross-border insurance planning, including:

• Life insurance planning for Canadian residents with US business interests, and vice versa

• Structuring policies to respect both Canadian and US tax treatment

• Executive compensation and split dollar planning for cross-border companies

• Estate and wealth transfer planning across jurisdictions

• Coordination with US and Canadian legal and tax advisors

 

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