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executive bonus agreement

     FOR THE BUSINESS/EMPLOYER     

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Selective Participation

The Employer chooses the bonus amount and which executives participate.

 

Tax Deductible

Bonuses that assist the Executive with paying the premium on the life insurance policy may allow for an immediate tax deduction(1) unlike traditional deferred compensation plans.

 

Executive Retention

An Executive Bonus Arrangement provides selected executives with attractive pre-retirement and postretirement benefits, which may reward the Executive and/ or incentivize the Executive to stay with the business.

 

Design Simplicity Brings Administrative Cost Savings

An Executive Bonus Arrangement is not a qualified plan, so it does not have the filing requirements of a qualified plan.  It can be established, administered, and terminated without the approval from the U.S. Department of Labor. The simplicity results in overall minimal administrative costs for the Employer.

       FOR THE EXECUTIVE       

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Additional Asset

If you die prematurely, your loved ones may be financially vulnerable. Protect your loved ones with an income taxfree(2) Death Benefit paid to the beneficiaries you select.

 

Additional Asset

The policy's accumulated value is an asset displayed on your personal balance sheet.

 

Supplemental Income

The policy's cash value accumulates tax-deferred. The Executive may access the policy's cash values income-tax free(3) for a short-term loan or to supplement income through policy loans or withdrawals.

 

Portable

The life insurance policy may be portable.  Should you leave the business, the policy goes with you.

 

Creditor Protection (4)

Because the policy is owned by the Executive and is not an asset of the business, it is generally beyond the reach of the business's creditors.  Whether the life insurance policy is protected from your personal creditors may depend on state law and the court's perception of the debtor's purpose in holding the insurance.

1The deductibility of the bonus is subject to the reasonable compensation limits established by Internal Revenue Code Section 162(a).

2For federal income tax purposes, life insurance death benefits generally pay income tax-free to beneficiaries pursuant to IRC Sec. 101(a)(1). In certain situations, however, life insurance death benefits may be partially or wholly taxable. Situations include, but are not limited to: the transfer of a life insurance policy for valuable consideration unless the transfer qualifies for an exception under IRC Sec. 101(a)(2)(i.e. the transfer-for-value rule); arrangements that lack an insurable interest based on state law; and an employer-owned policy unless the policy qualifies for an exception under IRC Sec. 101(j).

3For federal income tax purposes, tax-free income assumes, among other things: 1) Withdrawals do not exceed tax basis (generally, premiums paid less prior withdrawals); 2) policy remains in force until death (any outstanding policy debt at time of lapse or surrender that exceeds the tax basis will be subject to tax); 3) Withdrawals taken during the first 15 policy years do not cause, occur at the time of, or during the two years prior to, any reduction in benefits; and 4) the policy does not become a modified endowment contract. See IRC §§ 72, 7702(f)(7)(B), 7702A. Any policy Withdrawals, Loans and loan interest will reduce policy values and may reduce benefits.

4State law may provide life insurance and annuities with certain asset protection benefits.  As a general rule, a debtor may not transfer property with the intent to avoid debt due to his creditors.  The laws governing asset protection, however, are complex and the consequences of poor planning may be both civil and criminal penalties.  Anyone contemplating an asset protection plan should not undertake such without the advice of legal counsel.

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