The Importance of Reviewing Split Dollar Arrangements

From 2001 through 2003 there was a flurry of IRS and Treasury Department activity focused on split dollar arrangements. This activity culminated in final regulations that applied to any split-dollar life insurance arrangement entered into or “materially modified” after September 17, 2003. Many of our clients who have implemented split dollar arrangements are unaware of the drastic changes made by these final regulations and their options going forward. The following is a brief history of the actions taken.


The final regulations were the result of a series of actions by the IRS and Treasury to reexamine and set forth technical rules and guidance for the taxation of split-dollar life insurance arrangements. The following is the series of IRS guidance culminating in the final regulations.

 Material Modifications

These final regulations also apply to any split-dollar life insurance arrangement entered into on or before September 17, 2003, if the arrangement is materially modified after September 17, 2003. While the regulations did not provide a bright-line test for what constitutes a “material” modification, they did include a nonexclusive list of modifications that would not be considered “material”. For example, changes in the mode of premium payment, policy-loan interest rates or beneficiary choices (provided the beneficiary is not a party to the arrangement) are not material.

A material modification after September 17 has the following implications:

Reviewing Split Dollar Arrangements

There are many different variations of split dollar arrangements and the final regulations define split dollar in a very broad manner in order to capture all of these different variations. These final regulations have created a rather complex set of rules for taxing split dollar arrangements.  It is very important for clients who have implemented split dollar arrangements to review these plans to assure they are recognizing the proper taxation and determine whether their plan remains the most financially viable solution to achieve their goals. As part of our due diligence, we will conduct a full audit of your existing Split Dollar arrangements to assist you and your tax and legal advisors to determine your best course of action regarding the arrangements going forward.

*This material does not constitute tax, legal or accounting advice and neither Bowen, Miclette & Britt Insurance Agency, LLC nor any of its agents, employees or registered representatives are in the business of offering such advice. It was not intended or written for use and cannot be used by any taxpayer for the purpose of avoiding any IRS penalty. Comments on taxation are based on our understanding of current tax law, which is subject to change.