116 / How are split-dollar life insurance arrangements treated for gift tax purposes?
Gifts may arise in a split-dollar arrangement when a donor provides a benefit to a donee. For example, an employee or shareholder who irrevocably assigns his or her interest in a compensatory or shareholder split-dollar arrangement ( Q 4017) to a third party (such as a family member) may make gifts to such third party (including annual gifts of the amount the employee or shareholder is required to include in income). Also, a donor may make gifts to an irrevocable life insurance trust under a private split-dollar arrangement.
The treatment of split-dollar arrangements may differ depending on whether the arrangement was entered into or modified after September 17, 2003.
Post-September 17, 2003, Arrangements
Regulations generally provide that the treatment of a split-dollar arrangement depends on whether the donor is the owner of the life insurance contract.1 Even if the donee is named as the policy owner, the donor may be treated as the owner if the only economic benefit provided to the donee is the value of current life insurance protection.