Non-Equity Collateral Assignment
Split Dollar for Estate Liquidity
Using Life Insurance
Presented by
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As an Employer,
Attracting,
Retaining,
& Rewarding
Key Executives is a Top Priority
You Look to Executive Benefits
to Give You an Edge
But…..
…Many Top Executives Need
More Life Insurance Protection
Let Me Show You How
This Strategy May Help Meet
Your and Your Executive’s Needs
Non-Equity Collateral Assignment
Split Dollar for Estate Liquidity
What is Split Dollar?
An arrangement between an
employer and executive
to share
premium payments
and
benefits of a life insurance policy
How Does the Split Dollar
Arrangement Work?
Premiums
Ownership of Cash Value
Cash Value Net Amount at Risk
Employer Individual or Irrevocable Life Insurance
Trust (ILIT)
Pays the current cost of life insurance
Tax on cost of current life insurance protection
What is it?
Why Would You Want to Use the
Non-Equity Collateral
Assignment Split Dollar for
Estate Liquidity Arrangement?
• ILIT purchases life insurance policy on
you or on both you and your spouse
• Portion of the death benefit proceeds will be
kept out of both your and your spouse’s estate*
• Employer pays all or a majority of the premiums
and is assigned the policy cash value
– If you are a majority shareholder, the
– Employer/Corporation is given a restricted collateral assignment
• ILIT retains the death benefit in excess of
the amount owed to the employer
The Strategy
Life Insurance Owned
by an ILIT
Let’s See How This Works
Employer/Corporation
Premium Options
ILIT pays premiums
equal to reportable
economic benefit
(REB)* on its portion
of the death benefit
Employer will
pay remainder
Employer will pay all
premiums due
ILIT will pay
1 2
Rollout
• Upon termination of the
split dollar arrangement,
ILIT will pay portion
collaterally assigned to
employer
• If ILIT has no other assets
than the life insurance policy,
rollout may cause lapse of policy
Rollout Strategies
• Pre-fund the ILIT
• Promissory note
• Grantor Retained Annuity Trust
(“GRAT”)
Advantages
For The Employer
Increases loyalty and
productivity
Generally requires no IRS
approval
Can be reimbursed its total
premium outlay by
withdrawing it
For The Executive
Custom-designed to meet
their individual needs
Can provide them with pre
and post retirement life
insurance protection at a
reasonable cost
Disadvantages
For The Employer
Premiums are not deductible
to the Employer
Payment of premiums by the
Executive equal to the REB is
taxable to the Employer
For The Executive
No cost basis in the policy
Consider the Non-Equity Collateral
Assignment Split Dollar for
Estate Liquidity Arrangement if You…
• Want estate tax-free death
benefit proceeds*
• Want to minimize gift element to
REB**
• Can purchase necessary life
insurance coverage without
utilizing exemption amount or
paying gift taxes
This material is not intended to be used, nor can it be used by any taxpayer, for the purpose of avoiding U.S. federal, state or local tax penalties. This material is written to support the promotion or marketing of the transaction(s) or matter(s) addressed by this material. Pacific Life, its distributors and their respective representatives do not provide tax, accounting or legal advice. Any taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.
Pacific Life refers to Pacific Life Insurance Company and its affiliates, including Pacific Life & Annuity Company. Insurance products are issued by Pacific Life Insurance Company in all states except New York, and in New York by Pacific Life & Annuity Company. Product availability and features may vary by state. Each company is solely responsible for the financial obligations accruing under the products it issues. Product and rider guarantees are backed by the financial strength and claims-paying ability of the issuing company and do not protect the value of the variable investment options.
Variable insurance products are distributed by Pacific Select Distributors, Inc. (member FINRA & SIPC), a subsidiary of Pacific Life Insurance Company, and are available through licensed third-party broker-dealers.
Pacific Life’s individual life insurance products are marketed exclusively through independent third-party insurance professionals which may include bank-affiliated entities.
Investment and Insurance Products: Not a Deposit – Not FDIC Insured
– Not Insured by any Federal Government Agency – No Bank Guarantee – May Lose Value