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Add eSignature Split Dollar Agreement

so while other people are coming on i'm gonna cover um what the split dollar what split dollar is and why business owners who want to shelter income can use life insurance index universal life to do it plus using that money it's crazy using that money to fund their retirement with tax-free income it's this is insane it's actually the same program i'm on for my premium financing except you know big chunk of my premiums are being financed by bank and then um but split dollar the way this is designed is that the client wants to put they want to take money out of their own company a c corp s corp you know and that and that's really kind of where they're getting where they're getting the benefit is the difference between their own personal tax rate versus the corporate tax rate so for purposes of the example and these are you know this tax year it's kind of like that it's like 27 versus like 37 so there's like a 10 like arbitrage between personal his personal tax rate and this is a physician okay so look this physician makes about two and a half million dollars a year he's an internist and uh very successful in southern california got a lot of cash flow um it's a solo practice i mean he's got he's got a crank in and you know there's a point where you're just sick and tired of paying taxes he's got an extra two to three hundred thousand a year that he can do something with that he just doesn't want to pay taxes on right so he heard about split dollar and his brother i hired um just like in november and his brother was just you know can you guys do split dollar can you guys do split dollar and i said sure we can i don't even know exactly how it how it worked um i just know that we can do it because you know that's the program we're on and then i went and furiously looked up how to do it and it was really you know i educated myself but it wasn't that difficult it was just it's such a great concept so i thought you know when you run into high net worth individuals that people that are looking to shelter you know several hundred thousand or it could be fifty thousand doesn't matter the split dollar program will work exactly the same way as long as they're in a c corp or s corp where their corporate tax rate and their personal tax rate has that differential and that's really kind of where the benefit is okay so let me show you and and so this is a concept that you're not going to close the client right away but once they see it man and i'm going to show you the illustration that we're really using for this doc so let me uh let me kind of chart it out for you so you understand the general concept it's very cool okay come on focus focus good all right so here's how the concept works you've got the corporation like c or an s and they're taxed at a let's say a 27 tax corporate rate right okay then the owner of the company this is a case where the owner and the employee are the same person okay okay so you got the owner of the policy but in this case let's call it the employee so the owner employee are the same and the terminology can get really screwed up because um there's owner of the policy and the employee which are the same okay so this this is called an employee-owned split dollar program so the employee and the owner are the same you can do this for employees but the benefit is really going towards the the owner slash employee okay so this is what happens he's got every year he's got it let's say it's um 300 000 that he wants to shelter from taxes you know otherwise he'd be paying like 27 i actually if he pays himself 300 000 he's paying 37 um at the highest tax rate right on that 300 grand that's that's pure profit gang that's after his paying his secretaries and his lease on his building which he probably owns and you know all the lease on his medical equipment and his you know anyway whatever malpractice okay this is the extra the extreme okay i got my chat line up so he wants to do this for like basically what he wants to do is he wants to um year one year two i think is another i'll show you the illustration year three is another he's he wants to do this for ten years another three hundred thousand then you're four i think it's like 260 um year five just like 200 6 to year 10 which i think is 200 okay something like that and so what he does is how this works is he lends himself okay this is lens himself this year one year two year three okay one two three four down to year he lends himself the premiums into an iul so this is the the premiums that go into an iul index universal life that grows a cash value then after 10 years you know so year i think it's year 15 he pays the loan back which is about 2.5 million goes back to the corporation and this becomes retained earnings okay so he doesn't have to deal with taxes until it goes back into corporation now this money as it's being lent out is a loan so the loan is not considered taxable taxable to the corporation because it's being sent out as a loan so it's not being taxed okay and then so when you have a lending arrangement here on a split dollar number one there there are two documents that got to be signed okay and i'm gonna attempt to that binds this and makes this legal score according to the irs that's really just the irs needs to be concerned you need a collateral assignment agreement and what that collateral assignment says is that you know this is a 5.5 million dollar life insurance policy that actually increases until year 10 so it increases every year so 5.5 million say so what the employee is saying because employee owns this he owns the policy not the corporation okay that's important there's different methods of doing it but this is this particular situation so he signs a collateral assignment agreeing saying that because he owes the corporation this loan money he's going to assign the life insurance the portion of the death benefit to pay any outstanding loans okay which is only fair should he die all the loans are are taken care of okay so that's part of the collateral assignment but it's with himself right he's the lender and he's the borrower you know but he he's the corporation and then he's the employee okay you see how that works so he's got to sign it as the employee to back to the corporation until it's paid off in year 15 until that 2.5 million then you know all the collateral assignment agreement is done the other thing he does he's got to sign is a loan agreement which is just like any loan agreement like with your bank it says i will pay you this much i will pay this much interest this is how much um trying to find a good uh black marker because this one's kind of dying on me nothing like a fresh black marker so the loan agreement stipulates the interest rate okay so remember these are loans so he's going to he's supposed to pay an interest back to the corporation so when you set this up the loan agreement is set at zero percent so why would in other words why would he want to charge himself an interest okay so the loan agreement says that he will pay back this money at the end of the um before he takes out his lifetime income and so it's zero percent but the irs says okay so this is so that's the loan agreement but the irs the way they're going to look at it is hold on there boy hold on there is an imputed value of this loan okay the hour says there's an economic benefit to you receiving this loan that we can't like we that we can't um let go we can't just say no you you know they say no you can't we we're gonna have to tax something in other words right we're gonna have to tax the imputed value of that loan and then we're going to tax you on it so their imputed value of the interest right now it's running at 0.91 percent so they're saying on these split dollar deals if you're gonna charge yourself zero percent then we're going to say that that value to the employee it's like giving them a benefit of one percent on this basically one percent okay so doctor one percent of 300 000 is what three thousand right let's make sure i'm right because ten percent ten percent is thirty thousand one percent is three thousand so we're going to say that you got an economic benefit of three thousand dollars okay so we want you to pay your tax 37 percent and of course you know well 37 percent on that 3 000 so we're going to want you to pay tax to us uh this makes 370 times 3 right i hope you don't hear that drilling that's going on 0.37 times 3 000. so you're going to pay taxes you're going to pay us that tax on this imputed value of the loan and then every year that goes up to you know the second year is another three thousand so it's six thousand because you add another three thousand second year times thirty seven percent and then the next year based on one percent of three hundred thousand that'll be nine thousand times thirty seven percent on and on and on the accumulated loan money every year and then he just pays the 37 on the imputed value does that make sense yeah you hear it i'm sorry um can you hear me still even though you can hear the hear that stuff going on yeah you're fine okay so are you guys with me so far that for the cost of taxes on the imputed value of the loan is what this is costing him okay but he's not paying taxes over here he's only paying taxes on the imputed value of that interest you see that works it's pretty cool okay and so while he's doing all this this iul is growing cash value is going up and then when he takes the money out after he pays the loan off i think it's like 171 000 a year tax free tax-free do you see how brilliant the split dollar program is and and he just has to deal with the taxes at a corporate level later when he's probably shutting down his practice you know what i mean jelly bean so by taking this money out he's generated a lifetime income then he's taking the money back so the 2.5 million over these 10 years is still there do you see how he just leveraged it and he created a tax free income it's not free because he's paying the taxes on the imputed value of the interest on the loan do you see how awesome this is any business owner that's got 300 grand a year but like i said this could be 50 it could be 100 000 this is not based on premium financing where you have to have a certain net worth because they're paying the entire premium someone's got 25 grand here 50 grand a year whatever it is as long as they have a c corp or s corp this is just a beautiful concept right and he's got other investments and whatever whatever whatever but this rocks and the and the agent the agent who's writing this is his commission first year commission is 147 thousand dollars not to mention the renewals the renewals he's getting on that premium so he gets renewals on the first year that keep going like he gets the commission on the first year and then get renewals for the next nine years you know whatever that percentage is based on this commission rate you know i mean is that cool or what it'll make some money i mean can imagine if you did one of these a year if you spent 12 months finding one person that made about two and a half million or you know three million or one million a year or a 750 000 it doesn't matter you'll be writing some premium like let's say he doesn't have to let's see he found someone with 100 and the reason why is because the target premium on this is not 300 000 okay the target you get paid on target premium all right get paid on target premium so anyway am i making sense so far so let me share with you what this looks like as far as the illustration and i'll show you what it looks like on the split dollar side okay you didn't know that you could do some sophisticated retirement planning things with people did you this is f g life uh and we like f g life a lot because they've got all the living benefits oh by the way they have the living benefits that he's going to be able to take advantage of at a very high level uh plus they have the death benef the really strong illustration you can see at 6.71 so you can see here the uh 300 000 and then it goes down to 260 000 in year 5 and 210 000 and 200 000. so it's 2.5 million and he wanted to kind of front load it okay and so you can see them so year 15 you're 16 he's he's taken basically 2.5 million and paying it out to the corporation to forgive the loan not forgive but to pay off the loan and then he makes 175 000 a year for the rest of his life right so look what the benefit 176 615 times let's just say 15 this he lives another 15 years he's making he made 2.6 million tax-free 2.6 million tax-free over the next 15 years if he just lives another 15 years that's 2.6 million tax free not to mention that 2.5 million that went back into this corporation that he could put in some kind of an annuity right he put that an annuity and um pay taxes on it like an immediate annuity and then pay taxes on that and that might um 2.6 million an annuity activating a lifetime rider he doesn't have to pay taxes on all that right away in fact he could probably set up a some kind of employee benefit system through his corporation to pay him that buys the annuity for him and then he just pays the taxes on the immediate annuity and that might be another that seriously that could be another uh that could be another like 180 000 a year on an annuity that pays a lifetime you know the lifetime income for the annuity okay just so you see what happened what he did was he turned 2.5 million into a lifetime benefit of about two 2.6 million plus that 2.5 million he could put in an annuity that would give him another lifetime income which he takes taxes on that but he doesn't pay taxes on this so in effect what he did is he doubled his money or more probably more if you looked at the economic benefit total he more than doubled his money right in the span of 10 years i mean well so the question so the loan is an expense for the company to the employee yes it's not income it's it goes on the liability side of the thing not the profit side so right now it's a liability because it's a loan that hasn't been paid back yet okay so this is what it looks like as far as the illustration and look the dude might live till he's 94. yeah he's an internist he's a doctor he doesn't smoke you know i mean this totally rocks and then look at the the life insurance benefit that his family will get and it's also the life insurance benefit which is the repository for his living benefits whether it's the chronic illness writer if he loses two activities of daily living right or the critical illness writer becomes critically ill you know all those really good things that can benefit him okay so this is what the split dollar side looks like so this is the you know the nerdy part the nerdy illustration by the way i learned this in about three days not full you know probably if i added the number of hours to study this it was probably like two hours and then i got help from f g on running illustrations and i could i could actually run illustrations you can run these illustrations on the fng live software you just have to know where to go to find it so here's kind of the employee owned split dollar so let me kind of go back to the other this illustration is a really good tutorial on how it works so this right here is basically what i explained to you on my whiteboard all right so you got the employer which is himself his c corp he creates an agreement with his himself the employee of for the split dollar program okay the employer lends him the money to pay the premium and so there's an imputed interest and this goes to the life insurance company okay actually here's the loan here this line here is the loan to the employee and then the employer has rights to the policy cash value and or death benefit through the collateral agreement okay and then the employees writes the excess cash value so it's only up the collateral agreement is only the amount that is owed back to the company okay should he die then the death proceeds go to his beneficiary or beneficiaries minus the employer's interest which in this case is zero now if this is a separate employee he can charge the employee interest on it to get the money back okay but since he's the same person you know and then the income tax is again on the imputed interest of that loan so this is a really good graphic that explains what i explained to you on a white on the whiteboard okay so it says employers perspective attract and retain rewards selected key employees with cash value life insurance so it can be done for employees and it can be done for employees on a discriminatory basis which means not racial discrimination it means like certain benefits for an employer depending on the type of benefit there are some benefits where you must give everyone in your employment the same benefit exact same benefit okay there are some benefits that are like that there are other benefits and this is one of them that can be discriminatory on key employees so this is in essence key employee insurance using a split dollar strategy so you can retain employees important employees key employees and incentivize them by doing this for them okay so this employer's perspective cash flow under value to the extent of loan is an asset on the balance sheet that can be borrowed okay cash under value and death benefit attributable to the loan may fund a stock redemption plan and or key employee non-qualified deferred comp program this is all the extra stuff okay i don't want to get it too complicated but it's more powerful than just what i just said the employee's perspective they receive life insurance protection the employer pays part or all of the premium the employee's cost is the annual imputed interest value of the loan which i explained plan may be designed for a particular employee's needs since employer may select the employees to participate okay again that discriminate discrimination that's such a negative word they can choose the ones they want to incentivize okay caster under value and death benefit addressed by the employer for buy sell agreements or non-qualified deferred comp from the key employees it's kind of it's kind of interesting what you can do with this because it could also benefit the company if the policy is transferred to the employee policy loans and withdrawals may help provide for retirement college funding home improvement split dollar can replace or supplement group term life insurance okay so this shows you more of the detail so [Music] so this shows the 300 000 plan premium he's age 55 a cumulative loan okay so that's 300 you see the next year 300 000 loans who's got a cumulative loan the imputed loan interest rate of one percent so you can see the interest imputed alone interest here that in other words this is the benefit the employee's getting that the irs thinks that they should tax okay so they got to pay taxes he's got to pay taxes on the three six nine every year and this is for the first five years and then you can see here the employee the value that's inside the insurance policy after five years is 11 1 million 1.1 92 million and the death benefit or the amount paid employer at death to cover whatever that loan is okay so that just shows you what the collateral agreement says is owed back to the company then this is the rest of the 10 years you can see what the loan is imputed interest rate okay so the total interest that they're imputing as value is 149 000 okay now you can see the growth of what is owed back to the company 2.5 million so that is you know really that illustration is more from the employer's perspective on how this affects their books okay and then the illustration shows it really from the employee's perspective all right so so here's the deal you don't know have to know the details um yearly you could just explain it as simple as simply as i explained it to you to generate issues with the client okay so if you wanted if you found an employer has you know has a c corp or s corp then you can just just really say it simply like this how much money do you need how much money are you sick and tired of paying taxes on that's retained earnings in your corporation that you would like to do something with that can provide you tremendous benefit as far as taxi retirement and and avoiding taxes or deferring your taxes on that money sheltering that money from taxation well what do you mean well you know let's say for example you had a hundred thousand that um you could do something with every year otherwise you'd be paying your at your tax rate your personal tax rate on that money 37 on that money that you just hate paying taxes on right but you can put that money into something do you have what would that be like let's just say it's a hundred thousand so you you want to be able to shelter would you like to know how to shelter that money so you're not paying taxes on it every year and then you can put it in something that will provide you a lifetime tax free income really how do i do that well we got this program that will allow you to do it called split dollar that will allow you to shelter that money every year for 10 years or more however many you want how many years you want and then it'll give you a benefit of you know seven figures of life insurance for your family the ability to grow cash value and it tax-free where you could have you know more than six figures or double six figures of tax for your retirement for the rest of your life um it's a pretty cool program a lot of wealthy individuals are taking advantage of it you know is this something you'd like to find out more information on you know would you basically like to save on your taxes every year and develop a tax for your retirement that's all you got to do but mentally you know you don't have to go down the road the rabbit hole because we can put an illustration together and we can explain it to them you know all you're doing is like putting this money here okay letting it grow into an iul then putting that money there you get the benefit of lifetime income and all the living benefit riders and then this money you put back you can stick into a lifetime annuity that you only pay taxes on every year instead of on the full chunk at the corporate tax rate right is that cool it's so cool it is so cool anyway where you can literally double that double that retirement you got to pay taxes on this annuity but this is tax free this did you guys did i lose anybody did i explain that does that make sense someone someone yak at me it's brilliant it's so brilliant that i have it for myself oh hey well i'm really doing this for you this rocks man so i'll send you this illustration there's nothing personal other than what i'll do is i'll re redact the the name of the client and doctor it up so you know at least we you know protect the client's name but this thing rocks man so uh so that's my uh my commercial on this and look uh if it's a hundred thousand maybe you're making 50 grand on this deal with 50 000 on one deal be worth it for you to learn this you just find a random guy who's making you know 100 200 grand a year that needs to shelter some money and i'll tell you what you got all the reason in the world that owns a corporation all the reason the world for them to do it you know all the benefits just tremendous benefits so anyway all right so that's kind of my thing it's better off when you start at a younger age of course it is yeah can someone start at 60 yeah you need 15 years you need 15 years really to you don't need 15 years 15 years just if you were after a tax shelter you don't really need 15 years but for now you will to create tax-free retirement income you need 15 years so if they don't mind taking that money out when they're 75 you know and start taking the money at 76 then we can do it it is it is feasible okay of course it's better when they're younger but you know anyway okay so that is it um