SilverLink - Winter 2008 - (Page 29)

eMPloyee Benefits Personal Insurance Buy & Sell Agreements New Filing Requirements By Mark Weber, JD, CLU, ChFC, MSFS In the past, a lot of people looked at life insurance as protection for family members in the event of the untimely death of the insured (usually a parent). Death expenses and other bills could be paid, education funding made available for children and the future could be made more secure for remaining family members. In contrast, businesses have long known the value of life insurance to be a means of funding various organizational liabilities. The tax-free accumulation of cash values, combined with tax-free death proceeds, make it a uniquely attractive funding vehicle. Owners of closely held businesses often use life insurance to: a. redeem the shares of a deceased stockholder. b. reimburse the company for the financial loss occasioned by the death of a “key person.” c. repay the bank any outstanding debt when the owner suddenly dies. insurance. What many small business owners don’t realize is that they must now keep the IRS apprised of all life insurance the business owns on its employees. The Pension Protection Act, enacted in August 2006, requires the policyholder of an “employer-owned life insurance contract” (as defined in Internal Revenue Code §101(j)) to file an informational return with the IRS. The information required on the return under IRC 6039I includes the following: • • • • Number of employees at the end of the year Number of employees insured under contracts at the end of the year Total amount of insurance inforce at the end of the year under the contracts Name, address and taxpayer identification number of the employer and type of business in which the policyholder is engaged Verification of valid employee consent for each insured employee (or, if not, the number of insured employees for whom such consent was not obtained) It is quite common for businesses which have stock redemption buy/sell agreements to fund those agreements with life • The provisions of this new law apply to policies issued after August 17, 2006. Compliance with the law is relatively easy. To apply for a life insurance policy, owners and key executives will need to complete an insurance examination and a written application. As part of the application process, most insurance companies will ask the proposed insured to sign an acknowledgement form which states the amount of the insurance death benefit. The employee consents to be insured and agrees that the company will be the beneficiary. This information may be self-evident to owners and key management employees who are being insured as part of a business succession plan. Nonetheless, the new forms are now mandatory. Your tax preparer should be familiar with the new annual information return (Form 8925) which must be filed with the IRS pursuant to IRC §6039I. If your company recently purchased a key person life insurance policy or policies to fund a business succession plan and you or your tax advisor want more information on how this new law affects you, SilverStone Group’s Wealth Transfer division can help. 29 contact Mark WeBer at 402.96 4.5 4 42 or MWeBer @ ssgi.coM

Table of Contents Feed for the Digital Edition of SilverLink - Winter 2008

SilverLink - Winter 2008 Contents Risk Management: Where in the World is Human Resource Consulting? Workers’ Compensation Rate Declines Insurance Certificates Haute Retirement It All Began with a Cup of Coffee Playing Fair in the Housing Market Captives 101 Proceed with Caution Fore! (Or is it Pull? or Giddyup?) Don’t Be Fuelish Employee Benefits: Medical Trend Countdown to Compliance Private Client Services: Buy & Sell Agreements Flood Insurance Pushing Wealth to the Next Generation Client Spotlight: Travel and Transport Internal Happenings: SilverStone Group Giving Back Since 1945

SilverLink - Winter 2008

For optimal viewing of this digital publication, please enable JavaScript and then refresh the page. If you would like to try to load the digital publication without using Flash Player detection, please click here.