Employer enter into an agreement with
Executive to purchase a life insurance policy through the use of employer tax-deductible bonuses.
Employer, as part of a bonus to Executive,
pays premiums on a life insurance policy insuring Executive. Executive is the owner and names
the beneficiary(ies) of the policy. With the use of a
Controlled Executive Bonus Plan Direction form, the execise of all
ownership rights (except beneficiary
designation) requires signatures of
both Employer and Executive.
The bonus can be structured to reimburse
incomes taxes generated as a result of the additional compensation to Executive.
At retirement (or under an agreed
upon vesting schedule), Executive can receive supplemental retirement income through
withdrawals and loans from the life insurance cash value.
In the event of Executive's death,
his or her heirs can either receive annual income or a lump sum death benefit.
One of the many quandaries facing many executives today is planning for
their own retirement. They are concerned that Social Security and company pension plans alone will
not provide adequate retirement income. although many employers have tried to solve this problem
with non-qualified deferral compensation plans, executives may find these programs unattractive
because of the unsecured nature of the arrangement. Likewise, employers may feel uneasy about simply
establishing an executive bonus arrangement because of the loss of control over the benefits.
However, there is a prudent strategy to this common problem.
Employer enters into a controlled executive bonus agreement with Executive.
Through this arrangement, Employer uses tax-deductible bonuses to assist Executive in purchasing his or
her own personal life insurance policy. The insurance policy can be structured to provide supplemental
income for Executive and his or her family. Employer is able to limit Executive's access to the cash value
through the use of a Controlled Executive Bonus Plan Direction form. In addition, Controlled Executive
Bonus can be structured to pay an amount equal to all individual income taxes generated by the bonus,
resulting in a zero net cost to Executive.
Employer, through a bonus to Executive, pays premiums for a life insurance
policy, insuring his or her life. Executive is the owner and names his or her heirs as beneficiaries of
the policy. Using a Controlled Executive Bonus Plan Directive form, the exercise of all ownership rights
(except beneficiary designation) requires signatures of both Employer and Executive. This plan direction
form restricts Executive's access to the policy's cash value and the ability to transfer the policy
without Employer's consent. In accordance with the agreement's vesting schedule, Executive can receive
federal tax-free income from the life insurance cash value. In the event of Executive's death, his or her
heirs will receive annual income or a lump sum death benefit form the life insurance policy. By structuring
the program in this manner, Employer and Executive will obtain the following advantages:
Controlled Executive Bonus usually requires no prior IRS approval, and can
provide selected employees with attractive benefits.
Controlled Executive Bonus payments are tax-deductible to Employer as bonuses to Executive.
Controlled Executive Bonus design and implementation is simple, and administrative expenses are minimal.
Controlled Executive Bonus benefits may vary among executives.
Controlled Executive Bonus is structured to limit Executive's current access to policy
cash value through the use of a Controlled Executive Bonus Plan Direction form.
Controlled Executive Bonus can be custom designed to meet each Executive's individual needs.
The life insurance policy cash value accumulates in a tax-deferred manner.
With proper structuring, federal tax-free income can be received from the policy
cash value via withdrawals and loans.
Life insurance policy cash values are generally not accessible for the claims of corporate creditors.
Provides a death benefit for the Executive's heirs.
