Many small business owners struggle to find affordable, easy and effective ways to reward and retain key employees. So-called endorsement split-dollar life is often a viable, yet little-known solution, that can be offered to select employees and does not require Internal Revenue Service or government oversight. While many attorneys and financial advisers are familiar with the uses of split-dollar insurance in the estate planning and wealth transfer arenas, it provides an ideal framework as an employee benefit.

Assume a business (the firm) has a highly compensated and valuable employee, age 40. Chances are the employee would benefit from and appreciate having an interest in a cash value life insurance policy insuring his or her life. Split-dollar is not a type of life insurance, but rather is a planning strategy wherein multiple parties have an interest in a life insurance policy. In the context of our example, an employer-pay-all endorsement split-dollar arrangement will obtain the desired result, which is to provide a current and a future benefit to the employee while assuring that the firm will ultimately be repaid for the cost of providing the benefit. The current benefit to the employee is that he or she will have the ability to endorse a portion of the death benefit of the policy insuring his or her life to the employee’s beneficiaries (typically heirs or a trust for their benefit). The future benefit is that if the employee remains with the firm for the requisite amount of time, he or she can obtain ownership of the policy after the firm has been reimbursed what it paid in premium.

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