RONALD J. CAPPUCCIO, JD, LLM (TAX)


TAX, BUSINESS AND ESTATE ATTORNEY

QUESTIONS
856.665.2121

Insurance Funded Death Benefit Plan Reduces Taxes

What is a Funded Death Benefit Plan?

A Death Benefit plan is a "non-qualified" plan where your company agrees to pay a death benefit equal to two times your salary for one of your designated heirs. It is non-qualified because you do not have to offer this plan to all employees and you can discriminate in favor of officers and directors. Your business can purchase life insurance to fund all or a portion of the benefit.

A Death Benefit Plan Reduces Taxes!

The Federal tax advantages to a Death Benefit Plan are:

  • Proceeds from the insurance are tax-free to the company.
  • The company can deduct the payments it makes to the designated beneficiary
  • The plan can be discriminatory and cover only selected individuals
  • The proceeds of the insurance are not included in the estate of the employee

Potential Drawbacks:

  • If the employee desires to retain the right to change the beneficiary or to receive an annuity from the policy, the proceeds will be included in the employee's estate
  • The death benefit payments are taxable income to the beneficiary

Take Action Now!

There are many situations in which a death benefit plan can be a useful tool for the small business and family-owned business. When the death benefit plan is tied into the estate plan and business plan, it can be a powerful tax saving and tax shifting tool. The plan requires careful drafting by your tax and business attorney and coordination with your insurance broker and other financial advisers. Call Ronald J. Cappuccio, J.D., LL.M.(Tax) at (856) 665-2121.