A key Person/Retirement Benefit Combination

The purpose of this technique is to protect the corporation in the event of the loss of a key employee while binding the employee to the corporation until retirement by providing a substantial tax favored build-up available at that time.

How it works?:
A. Prior To Retirement
1. Owner: Employee owns policy from the begining.
2. Beneficiary: Corporation is named beneficiary of its agreed upon interests in the cash values and death benefit.
3. Premium Payer: Corporation is recieving the economic benefit and is responsible for paying the PS 58 rates. Employee pays any balance.
4. Reverse Split Dollar Agreement: Limits rights to internal values (i.e., right to borrow, assign, withdraw, etc.) until termination of plan.
B. At Retirement
Employee/Owner simply changes the beneficiary. The agreement expires, eliminating restrictions on values. There is no further economic benefit to the corporation. Nothing is owed to the corporation.

C. At Death
The death benefit is recieved by beneficiaries free of income taxation, but is a part of the employee's estate ( less the portion paid to the employer).

Note: by using interest sensitive life insurance such as universal life and full PS 58 Rates, often the employee contributes little of the total premium, but ultimately recieves the total cash value buildup.

Besides protection from the loss of a key person, other corporate uses include:
1. section 303 or Stock Redemption Funding.
2 Salary Continuation or Death Benefit Only Funding.
3. Corporate Loan Protection.

This document was last modified on July 15, 1999

Copyright ©1999, The Jacobs Company, All Rights Reserved