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You are here: Experts > Money > Personal Insurance > Life & Health Insurance > Policy ownership and personal taxes
Expert: Willard R. Brumbaugh, LUTCF, CSFP
Date: 5/15/2008
Subject: Policy ownership and personal taxes
Question
About 20 years ago the small company I work for offered a retirement plan that amounted to a $200,000 whole life policy with me paying half of the monthly premium and they paying the other half. The plans were initally owned by both myself and the company in a 50/50 split with both my spouse and the company being 50/50 benficiaries. Now that I have been with the firm for 20 years 100% of the policy ownership will become mine and my wife will be the sole beneficiary. Are their contributions now considered income and will I need to pay taxes on the 1/2 of the premium they have been paying for the past 20 years? Will the premiums they pay in the future be considered income and be added to my annual gross?
Answer
Dear Jim,
Yours is a pretty typical "split dollar" Whole Life. Unless you "buy" the company's share of the premium, what it paid would be considered reportable income.
If this is a traditional "participating" Whole Life, dividends should offset a significant portion of future premiums, eliminating the need for any company contributions. This would resolve future tax considerations.
It may be that you could withdraw the current dividends to pay back the company for their contributions. If that is not enough, you could borrow the difference from the policy's equity.
It would be helpful to me, if you could give me the full details of this policy. You can reach me at (760) 247-9090.
Willard R. Brumbaugh, LUTCF
CA License 0374776
www.willardbrumbaugh.com
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