Trust-Owned Split-Dollar Life Insurance: A Powerful Case Study in Executive Wealth Transfer

In today’s competitive market, private companies must offer more than salary, bonus, and equity plans to retain elite non-owner executives. High-performing leaders - especially those in top roles like a Chief Executive Officer (CEO) - increasingly expect benefits that help them grow and protect personal wealth in a tax-efficient way.

A Trust-Owned Split-Dollar Life Insurance Plan delivers exactly that. This strategy pairs corporate funding with trust ownership to create significant, tax-free legacy wealth, outside of the executive's taxable estate, while ensuring the company ultimately recovers its cost.

We recently settled a death claim on a plan originally implemented in 2003. The case study below illustrates the meaningful benefits that result from a well-structured and carefully administered split-dollar plan.

The Challenge: Deliver High-Value, Tax-Efficient Executive Benefits

A successful private company wanted to reward and retain its key executives, including its long-tenured CEO with significant personal wealth. The CEO had a desire to shift wealth to his children and grandchildren. Therefore, the company aimed to provide a meaningful benefit that:

• Couldn’t easily be replicated on the open market

• Created lasting generational wealth

• Avoided income and estate tax exposure

• Was cost-neutral to the company with minimal earnings impact

The CEO was seeking a benefit arrangement that removed the asset from his taxable estate while also avoiding additional income and estate tax triggers. Any new bonuses and/or deferral strategies would not achieve this goal.

Case Study: How the CEO Built Tax-Free, Multi-Generational Wealth

Working with TRC Financial, the business implemented a Trust-Owned Split-Dollar Life Insurance Plan tailored for their CEO.

1) Structure: Owned Outside of the Taxable Estate

Instead of personal ownership, the CEO created an Irrevocable Life Insurance Trust (ILIT). This trust owned a second-to-die life insurance policy on the CEO and spouse.

Key Advantage: Because the CEO never owned the policy, the $10 million future death benefit was excluded from his taxable estate - avoiding a potential 40% estate tax hit.

2) Premium Funding: The "Split" Arrangement

Under the split-dollar agreement:

• The company paid premiums, creating a recoverable interest in the policy equal to total premiums paid.

• The company recorded its interest in the policy as an asset, creating minimal earnings impact.

• The CEO's trust contributed the imputed income each year back to the company, as an economic benefit because the company funded the policy.

This design aligned corporate objectives with personal wealth-transfer goals of the CEO.

3) Tax Efficiency: Leveraging Annual Gift Tax Exclusions

The real planning advantage came from how the executive handled the tax cost:

• The CEO and his spouse used annual gift tax exclusions (e.g., $19,000 per trust beneficiary per person in 2025) to "gift" the value of the imputed income to his ILIT.

• These gifts were free of gift tax and consumed only a small portion of his and his spouse's lifetime unified credit.

• The trust, in turn, made a payment to the company for its portion of the imputed income cost.

This strategy allowed the CEO to transfer significant wealth to his trust without triggering gift taxes - a major long-term advantage for his other estate planning strategies.

The Results: Trust-Owned Split-Dollar Life Insurance

22 years later, following the second death, the plan functioned exactly as designed:

Outcome: A complete win-win

• The company recovered every dollar it contributed.

• The CEO's family received over $7.9 million outside of the taxable estate.

• All benefits were achieved within IRS guidelines and corporate accounting rules.

Why Split-Dollar Remains a Premier Executive Benefit Strategy

For privately held businesses looking to attract and retain top talent, a Trust-Owned Split-Dollar Plan is one of the most effective tools available, especially for executives who already have a significant net worth. It:

• Enhances executive retention and loyalty

• Creates multi-generational, tax-free wealth for the executive

• Minimizes corporate cost

• Avoids estate tax inclusion for the executive

• Preserves the executive's other gifting and planning opportunities

When designed properly, as in this CEO case study, it delivers extraordinary value for both the company and the executive's family. Ready to discuss a split-dollar plan for your company? Contact us today to learn more about our proprietary solutions and how we can support your company.

This material and the opinions voiced are for general information only and are not intended to provide specific advice or recommendations for any individual or entity. The tax and legal references attached herein are designed to provide accurate and authoritative information with regard to the subject matter covered and are provided with the understanding that neither TRC Financial, nor M Financial are engaged in rendering tax, legal, or actuarial services. If tax, legal, or actuarial advice is required, you should consult your accountant, attorney, or actuary. Neither TRC Financial, nor M Financial should replace those advisors.