The employee's share, which, in the early years, is usually only a small percentage of the annual premium, is the measure of the employee's transfer for both gift and GST tax purposes. The employer will receive a portion of the death benefit equal to its premium outlay, and the trust will receive the remainder of the death benefit.
Cash value is split in a similar way.
Because of split-dollar's minimum gift tax cost vs. maximum estate and GST tax savings, it can be an attractive Transfer Tax Leverage Technique for large life insurance purchases. Several years ago, the IRS took the position in an unofficial private ruling that the annual increase in employee cash value equity under an equity split-dollar plan was subject to income and gift taxation. This ruling has been severely criticized. For more on split-dollar, see our Current Developments . We do not express any opinion on the investment, legal, or tax consequences of this plan, and you are responsible for consulting your own investment advisors, legal counsel, and accountants for all such advice.