Montana Split-Dollar Insurance Agreement with Policy Owned Jointly by Employer and Employee

• Category: Insurance - Contracts
• State: Multi-State
• Control #: US-1086BG
• Format: Word; Rich Text

Description

In a split-dollar plan, an employer and employee execute a written agreement that outlines how they will share the premium cost, cash value and death benefit of a permanent life insurance policy. Split-dollar plans are frequently used by employers to provide supplemental benefits for executives and/or to help retain key employees. The agreement outlines what the employee needs to accomplish, how long the plan will stay in effect and how the plan will be terminated. It also includes provisions that restrict or end benefits if the employee decides to terminate employment or does not achieve agreed-upon performance metrics.

A Montana Split-Dollar Insurance Agreement is a unique arrangement where an employer and employee jointly own a life insurance policy and share the costs, benefits, and rights associated with the policy. This type of agreement is commonly used in executive compensation plans, as it offers significant tax advantages for both parties involved. In a Montana Split-Dollar Insurance Agreement, the employer typically pays the policy premiums, while the employee repays the employer through various means, such as salary deductions or bonus deferrals. The premiums paid by the employer are treated as a loan to the employee, which accumulates interest over time. Upon the employee's death, the employer receives its premium payments back, and the remaining policy proceeds are typically paid to the employee's beneficiaries. The primary goal of a Montana Split-Dollar Insurance Agreement is to provide key employees with life insurance coverage while allowing the employer to recover its investment in the policy over time. Additionally, this arrangement allows the employee to access the policy's cash value, which can serve as a valuable financial resource. Montana Split-Dollar Insurance Agreements can be further categorized into two main types: Endorsement Split-Dollar and Collateral Assignment Split-Dollar. 1. Endorsement Split-Dollar: In this type of agreement, the employer is named as the policy's owner and pays all or a significant portion of the premiums. The employee is typically designated as the primary beneficiary and may have access to the policy's cash value and borrowing privileges during their lifetime. 2. Collateral Assignment Split-Dollar: In this variation, the employee owns the policy, while the employer is named as the primary beneficiary. The employer advances the premium payments and holds a collateral assignment on the policy to secure its premium reimbursement rights. The employee still has access to the policy's cash value and borrowing privileges. To set up a Montana Split-Dollar Insurance Agreement, it is advised to consult with legal and financial professionals experienced in executive compensation and life insurance planning. They can help employers and employees navigate the intricacies of drafting and implementing a tailored agreement that adheres to state regulations and takes advantage of relevant tax provisions. Overall, a Montana Split-Dollar Insurance Agreement with a policy owned jointly by employer and employee offers a flexible and tax-efficient way to provide life insurance coverage for key employees, while also allowing the employer to recoup its premium investment over time.