values, and/or death benefits are split between two parties (owner and non-owner). It
is not a type of life insurance or a reason for buying life insurance; rather, it is a method
of financing the purchase of life insurance. Split-dollar is generally most appropriate
when one party (the company) has the cash to pay the premiums for life insurance
and the other party (the employee) has the need for life insurance. Depending upon
the method of split dollar used, the policy owner may be the employer, the insured/
employee, and the insured's trust or a third party.
With the collateral assignment split-dollar arrangement, the employee or the
employee's trust is designated the owner of the policy. The employee's spouse, other
family member, or the trust is named beneficiary of the policy. The employer's premium
payments are secured by a collateral assignment on the policy. As in the endorsement
method, the rights and duties of the two parties are spelled out in a split-dollar agreement.
Typically, collateral assignment arrangements are used for two reasons:
1. First, it is generally easier to keep the death benefit out of the estate of a controlling shareholder.
2. Second, the collateral assignment method makes it somewhat easier for the employee to take over the policy unencumbered.
Since the employee owns the policy from the outset, it is not necessary to transfer ownership from the corporation to the employee, though the collateral assignment would be released when the split dollar is terminated and taxation would result.
A Split-Dollar Agreement — Non-Equity Collateral Assignment Arrangement — Economic Benefit Approach - Minority Owner or Key Executive Owned is an arrangement between two parties in which the policy owner (business or employer) and the insured (employee) share in the economic benefits of a life insurance policy. The employer pays the insurance premium and owns the policy, but the employee is the insured and is entitled to the death benefit. The agreement defines the way in which the parties share the economic benefits of the policy. There are two main types of Split-Dollar Agreements — Non-Equity Collateral Assignment Arrangement — Economic Benefit Approach - Minority Owner or Key Executive Owned: Endorsement Split-Dollar and Loan Split-Dollar. In Endorsement Split-Dollar, the employer pays the premium and the employee endorses the policy as collateral for the repayment of the premium. In Loan Split-Dollar, the employer loans the employee money to pay the premium, and the policy is used as collateral for the loan. In either case, the employee and employer will share in the economic benefits of the policy.
