Let’s explore a recent case where a business owner was looking to retain a key employee. She first explored offering an executive bonus plan or REBA plan to the employee, but ultimately decided she wanted more control over the policy. The solution was an endorsement split dollar plan with John Hancock’s Accumulation IUL. This simple yet effective plan gave the business owner increased control over the plan while providing a powerful way to benefit the key employee.
Caroline owns a successful medical practice and employs Tom (40, PNS), a nurse practitioner who is integral to her operation. Caroline has $20k of discretionary dollars to put towards a plan to reward Tom and help ensure that he stays with her practice. Caroline’s minimum “golden handcuff” period is 10 years (i.e. the period of time she wants Tom to remain working for her business). A REBA provides a “golden handcuff,” because Tom would own the policy and would be required to pay back all of the premiums paid.
The endorsement split dollar plan was a win-win – the medical practice was able to provide a valuable benefit to Tom while still allowing Caroline to have increased control over the policy for the critical 10-year time period.
Loans and withdrawals will reduce the death benefit, cash surrender value, and may cause the policy to lapse. Lapse or surrender of a policy with a loan may cause the recognition of taxable income. Policies classified as modified endowment contracts may be subject to tax when a loan or withdrawal is made. A federal tax penalty of 10% may also apply if the loan or withdrawal is taken prior to age 59 1/2.
Life insurance death benefit proceeds are generally excludable from the beneficiary’s gross income for income tax purposes. There are few exceptions such as when a life insurance policy has been transferred for valuable consideration.
This material does not constitute tax, legal, investment or accounting advice and is not intended for use by a taxpayer for the purposes of avoiding any IRS penalty. Comments on taxation are based on tax law current as of the time we produced the material. All information and materials provided by John Hancock are to support the marketing and sale of our products and services, and are not intended to be impartial advice or recommendations. John Hancock and its representatives will receive compensation from such sales or services. Anyone interested in these transactions or topics may want to seek advice based on his or her particular circumstances from independent advisors.
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This material is for Agent and Institutional / Broker – Dealer use only. Not for distribution or use with the public.
Insurance products are issued by: John Hancock Life Insurance Company (U.S.A.), Boston, MA 02116 (not licensed in New York) and John Hancock Life Insurance Company of New York, Valhalla, NY 10595. Variable insurance products are offered through John Hancock Distributors LLC through other broker/dealers that have a selling agreement with John Hancock Distributors LLC, 197 Clarendon Street, Boston, MA 02116.
Insurance policies and/or associated riders and features may not be available in all states.
© 2024 John Hancock Life Insurance Company (U.S.A.). All rights reserved.
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