IRS Argues Split-Dollar Is Not “Faire,” but Challenge Is Foiled By Alexander Lyden-Horn and Justin Miller
Split-Dollar Arrangements Are Not Futile—or Feudal A split-dollar life insurance arrangement is a structure in which one party provides funding for a life insurance policy on another’s life, with repayment to be made from—or secured by— that policy. The remaining proceeds of the policy after repayment of the premiums, if any, will pass to the beneficiaries. Thus, the “split” in split-dollar refers to the split interest between the funder and the beneficiaries in the proceeds of the policy. The Estate of Levine involved a special type of split-dollar arrangement—often referred to as an intergenerational splitdollar arrangement—in which a parent loans money to pay for insurance on children’s lives, with the benefit passing to grandchildren. The parent’s right
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Alexander Lyden-Horn is a managing director and the Director of Delaware Trust Services and Trust Counsel at Evercore Trust Company. Justin Miller is a partner and the National Director of Wealth Planning at Evercore Wealth Management. Justin also is the vice chair of the ABA RPTE Business Planning Group and vice chair of the Individual and Fiduciary Income Tax Committee.
power to terminate the policies and (2) the person with the power to do so was constrained by fiduciary obligations.
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n Estate of Levine v. Commissioner, 158 T.C. No. 2 (2022), the estate successfully parried an IRS challenge to the valuation of the decedent’s right to repayment of premiums under a splitdollar life insurance arrangement. The IRS argued that the value of such right should be equal to the cash surrender values of the life insurance policies— and their weapons of choice were sections 2036, 2038, and 2703. In an opinion full of dual—or one could argue “duel”—meanings, the court ultimately rebuffed the IRS’s valuation challenges because (1) the decedent retained no
Published in Probate & Property, Volume 36, No 4 © 2022 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
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July/August 2022
