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

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

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

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.

Learning Objectives

After completing this course, you will be able to

• Identify the advantages of utilizing the IRS’ economic benefit regime in providing valuation of an inter-generational SDA
• Recognize the types of insurance policies and arrangements that are appropriate for SDAs held in trusts
• Decide the ideal client situation for use of an SDA
• Determine the existing valuation issues on receivables arising from an SDA

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite:

  Three years or more estate planning tax work. Responsibility for preparing complex forms and/or supervision of other preparers’ work; familiarity with the Tax Court’s Morrissette ruling, and foundational knowledge of using split-dollar life insurance arrangements in estate planning and IRS rules regarding the economic benefit rule as it applies to valuation of life insurance and receivables under a split-dollar arrangement

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IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).