In a collateral split-dollar arrangement, does a change in insurance carriers trigger the three year transfer rule for estate planning purposes for the insured?

Could you give an example of the policy ownership/assignee/beneficiary structure you have in mind?

I presume you're referring to the REPLACMENT of one life policy with another in a tax-free exchange (IRC 1035).



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John L. Olsen, CLU, ChFC
Olsen Financial Group
St. Louis, MO
314-909-8818

Policy is owned by executive. Pursuant to a split dollar agreement, executive pays premium equal to PS58 cost and employer pays rest of premium. Policy collaterally assigned to employer to secure the return of it's premium payments under the policy at agreement termination (which is expected to be generally at executive retirement). Employer transferred its collateral assignment interest to a rabbi trust to secure SERP benefits. Employee names beneficiary for employee share of death benefit, and rabbi trust receives the remainder of the death benefit pursuant to the agreement and collateral assignment. The subject policy, which is underperforming, will be replaced with a more efficient policy. Policy may be a different type of policy (e.g., a variable premium universal life policy v. a whole life policy).


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I don't see how the 3-year rule of IRC 2035 is relevant. As the policy is owned by the executive, the death benefit is includible in his or her estate. An exchange of the policy won't affect this.



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John L. Olsen, CLU, ChFC
Olsen Financial Group
St. Louis, MO
314-909-8818