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Katt & Company is a national fee-only life insurance advising firm. The June 2002 Forbes magazine, and a July 16, 2003 Wall Street Journal article, name Peter Katt as one of only four nationally recognized advisors. The Forbes article states that, "…advisers are well worth the money… These savants are working for no one but you…" For references please contact us. Dealing with Staggering Economic Benefit Costs Associated with Split Dollar "I made the suggestion of paying the premium as a gift instead of recognizing the economic benefit cost as income and paying income taxes of some $100,000."
While reviewing a grandfathered split dollar policy during these difficult economic times, it was decided to terminate split dollar and replace it with a smaller low-expense survivorship UL initially funded for a 10 year period. One of the details needed to wrap all this up was to account for the 2008 economic benefit associated with split-dollar. The Table 2001 cost was about $250,000, which was close to the target premium. I made the suggestion of paying the premium as a gift instead of recognizing the economic benefit cost as income and paying income taxes of some $100,000. Paying a premium would translate almost dollar-for-dollar into additional policy value that would be useful in paying off the split-dollar balance upon terminating the policy. The insured owns the company involved in the split-dollar arrangement so this is just moving funds to a different pocket. Because the client had the cash available, and sufficient gift tax credits to avoid out of pocket gift taxes, it was decided that the best move was to pay the premium and avoid the complete loss when paying income taxes on the economic benefit. Even if gift taxes would be incurred, I suspect that paying target premiums is better financially when economic benefit costs have gotten large and split-dollar is going to be terminated. Usually there are substantial benefits to paying gift taxes instead of waiting to transfer assets upon death. My March 2008 Perspectives, Gifting and Gift Taxes, deals with this subject.
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