Structuring Split-Dollar Life Insurance Arrangements After Morrissette: Leveraging the Economic Benefit Rule

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


Conducted on Tuesday, September 20, 2016

Recorded event now available

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Program 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 in the aftermath of the landmark U.S. Tax Court holding in the Morrissette case. The panel will offer specific guidance on drafting split-dollar agreements (SDAs) in light of the court’s rejection of the Service’s challenge, and will give practitioners useful tools to structure the arrangements to conform with the favorable economic benefit doctrine.

Description

In Estate of Morrissette v. United States, the Tax Court removed a significant barrier to the use by estate planners of SDAs involving life insurance policies. In a landmark holding, the Tax Court rejected an IRS challenge to the use of an inter-generational SDA, ruling that the premiums paid by a mother’s trust for life insurance policies on her three sons in a split-life insurance arrangement weren’t taxable gifts.

The Tax Court’s ruling represents a significant win for estate planners using inter-generational split-dollar life insurance transactions. The Morrissette court found that the value of the life insurance protection must be determined using the economic benefit rules listed in Treas. Reg. 1.61-22. This allows taxpayers to value the life insurance at discount rates, which are generally very favorable to the taxpayer.

Estate planners now have more certainty in structuring SDAs to reposition liquid assets to lessen the impact on income and estate tax. 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 regime.

Listen as our experienced panel 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. Annual administration
  2. Income tax impact of Morrissette; using economic benefit regime to value premium payments
  3. Appropriate life insurance policies
  4. Questions regarding the valuation of receivables under an SDA
  5. Structuring the SDA
  6. Termination

Benefits

The panel will discuss these and other important topics:

  • What is the significance of the Tax Court’s holding in Morrissette that the economic benefit regime of Treas. Reg. 1.61-22 is applicable in valuing the purchase of the policy premiums.
  • How to structure an SDA so it avoids the more restrictive valuation rules found in IRS Notice 2002-59.
  • What traps to avoid in the valuation of receivables arising from purchase of the premiums in structuring an SDA.
  • Under what client circumstances would the use of an SDA be most appropriate.

Faculty

Kelley C. Miller
Kelley C. Miller

Atty
Reed Smith

Ms. Miller's practice areas include cloud computing, complex federal tax controversies, state and federal...  |  Read More

Richard Harris, CLU, AEP
Richard Harris, CLU, AEP

Richard L. Harris LLC

Mr. Harris, CLU AEP TEP, is a life insurance consultant and expert witness who has been in the life insurance business...  |  Read More

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