Structuring Split-Dollar Life Insurance Arrangements after Estate of Levine v. Commissioner

Navigating Secs. 2036, 2038, and 2073 and Maximizing Tax Benefits of Split-Dollar Insurance Transactions

Recording of a 90-minute CLE/CPE video webinar with Q&A

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Conducted on Wednesday, September 7, 2022

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Course Materials

This CLE/CPE webinar will provide estate planners and advisers with a thorough and practical guide to the use of split-dollar life insurance arrangements after the U.S. Tax Court holding in the Levine case. The panelist will offer specific guidance on drafting split-dollar agreements (SDAs) considering the court’s ruling and will give practitioners useful tools to structure the arrangements to conform with the favorable economic benefit doctrine.

Description

Estate of Levine v. Commissioner illustrates the importance of careful estate planning when using SDAs involving life insurance policies. The Tax Court held that the value included in a taxpayer's gross estate for a receivable created under a split-dollar life insurance arrangement was the value of the receivable and not the cash-surrender value of the insurance policies purchased under the arrangements.

The Tax Court's ruling represents a significant win for estate planners using split-dollar life insurance transactions. A critical component of the court's ruling was that Sections 2036 and 2038 did not require inclusion of the policies' cash-surrender values due to the fact that only the insurance trust, and not the decedent, could terminate the life insurance policies, and also stating that Section 2703 was inapplicable to the split-dollar receivable because there were no restrictions on it.

Counsel should understand the valuation rules to structure transactions to ensure that the transaction and the valuation of the receivables conform with IRS rules under the economic benefit and loan regime, which govern the income and gift tax consequences of split-dollar arrangements.

Listen as Gerald R. (Gerry) Nowotny, JD, LLM, Managing Partner at Law Office of Gerald R. Nowotny, provides guidance for structuring SDAs. The panelists will review the available "regimes" that govern taxability, estate planning benefits, appropriate life insurance policies, structuring the SDA, and termination.

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Outline

  1. Benefits and complexities of the SDA
    1. Gift tax leverage
    2. Estate tax leverage
    3. Control
    4. Administration
  2. Income tax impact of Levine
    1. Questions regarding the valuation of receivables under an SDA
    2. Key considerations and challenges
  3. Structuring the SDA
  4. Termination

Benefits

The panelist will discuss these and other important topics:

  • What is the significance of the Tax Court's holding in Levine?
  • How to structure an SDA so it avoids the more restrictive valuation rules
  • What traps to avoid in the valuation of receivables arising from the purchase of the premiums in structuring an SDA?
  • Under what client circumstances would the use of an SDA be most appropriate?

Faculty

Nowotny, Gerald
Gerald R. (Gerry) Nowotny, JD, LLM
Managing Partner
Law Office of Gerald R. Nowotny

Mr. Nowotny has over 30 years in the insurance and financial planning industries. He has developed an expertise in tax...  |  Read More

Borevitz, Chaim
Chaim Borevitz, MBA, CBA
Managing Member
Crown Value

For over 20 years, Mr. Borevitz has valued all types of businesses, including manufacturing, wholesale, retail,...  |  Read More

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