Intergenerational Split Dollar – Recent Adverse Decisions in Morrissette and Cahill, Where Do We Go from Here? 

Steve Leimberg’s Estate Planning
Email Newsletter Archive Message #2651
Date:17-Jul-18

Subject: Lee Slavutin, Richard Harris & Martin Shenkman – Intergenerational Split Dollar – Recent Adverse Decisions in Morrissette and Cahill, Where Do We Go from Here? 

“Two recent Tax Court decisions affecting intergenerational split dollar (IGSD) arrangements have forced practitioners to rethink this strategy. In Morrissette in 2016, the Tax Court ruled favorably on the income and gift tax treatment of the initial premium transfer. The unanswered question after Morrissette, however, was the determination of the value of the donor/decedent’s interest in the IGSD plan. Taxpayers have taken, based on independent appraisals, significant discounts in valuing the decedent’s interest in IGSD plans.

 The IRS has argued for the application of Sections 2036, 2038 and 2703 to negate the discount. In mid-June, the Tax Court refused to rule favorably on the taxpayer’s request for summary judgement that Sections 2036, 2038 and 2703 were not applicable in this context. Practitioners might consider communicating with clients who have existing economic benefit ISGD plans. 

Those plans should be evaluated to determine if steps might be taken, based on the Cahill and Morrissette decisions, to differentiate those plans and perhaps to enhance their viability. Nonetheless, practitioners will have to wait to see how these cases and the Levine case are finally decided.

There is also the possibility that one or both cases are settled without a court decision, but it would seem that the IRS may push to a final court holding to bolster its position with other IGSD plans. 

It might not be advisable to create a new economic benefit IGSD plan until the final Cahill and Morrissette decisions are issued because of the doubt about being able to discount the donor’s repayment rights, if the potential estate tax discount is a key part of the transaction. It is possible that these recent decisions may not affect loan split-dollar transactions, although

practitioners should endeavor to better corroborate business purposes for such transactions in the wake of Cahill and Morrissette.” 

Lee Slavutin, Richard Harris, and Martin Shenkman provide members with detailed commentary on the Morrissette and Cahill opinions.

Lee J. Slavutin is a principal in Stern Slavutin 2, Inc., a life insurance and estate planning firm in New York. He graduated from Monash University Medical School in Melbourne, Australia in 1974 and became a Fellow of the Royal College of Pathologists of Australia and a Diplomat of the American Board of Pathology in 1981. Dr. Slavutin left the practice of medicine in 1982 and entered the life insurance business in 1983. He is a member of the Association of Advanced Life Underwriting and the Million Dollar Round Table and is a Chartered Life Underwriter with the American College. Dr. Slavutin has published 170 articles on insurance and estate planning topics for CCH, Warren Gorham and Lamont, Practitioners Publishing Company (PPC), New York Law Journal and others. He is a member of the CCH Estate and Financial Planning Advisory Board, and the Advisory Panels of PPC and Bottom Line Personal. He is the Author of “PPC’s Guide to Life Insurance Strategies”, 19th edition (2017), published by Thomson Reuters. Dr. Slavutin has spoken before the American Law Institute/American Bar Association, the New York County Lawyers’ Association, the American Institute of Certified Public Accountants (CPAs), the New Jersey State Society of CPAs, the Association of Advanced Life Underwriting, the Million Dollar Round Table, and the UJA-Federation Annual Tax and Estate Planning Conference, as well as many New York accounting and law firms. He was invited to testify before the New York State Senate on the effectiveness of the insurance rating firms and worked with the U.S. General Accounting Office on a similar project. He is married to Dee and they have two children, Aaron and Lydia. He can be contacted at ls@sternslavutin.com

Richard L. Harris, CLU, AEP, TEP, is a life insurance consultant and expert witness who has been in the life insurance business since 1970. He is widely regarded as one of the most knowledgeable and respected people in the field. His goal is to help other professionals and their clients. Among his accomplishments he is Chair of the Insurance Committee, Trusts & Estates; Professional Expert, WR Newswire An AALU Washington Report; Contributor, Leimberg Information Systems Inc. email Newsletters; Member of Committee on Insurance and Financial Planning, American Bar Association, Real Property Trusts & Estates Section. He has authored and co-authored many articles that have appeared in: Trusts & Estates, Estate Planning, Steve Leimberg’s Newsletters, Journal of Wealth Management, e Report of American Bar Association Real Property Trust & Estate Law Section, Wealth Strategies Journal, Journal of Practical Estate Planning, WR Newswire, an AALU Washington Report; and he has co-authored (with Russ Alan Prince) the book: Advanced Planning with the Ultra-Affluent: A Framework for Professional Advisors published by Institutional Investor. He can be contacted at richard@rlharrisllc.com.

Martin M. Shenkman, CPA, MBA, PFS, AEP, JD is an attorney in private practice in Fort Lee, New Jersey and New York City who concentrates on estate and closely held business planning, tax planning, and estate administration. Estate Planning After the Tax Cut and Jobs Act of 2017, written by Marty Shenkman, Jonathan Blattmachr and Joy Matak, is available at the link below as an e-book on https://www.amazon.com/Estate-Planning-after-Jobs-2017- ebook/dp/B0797F1NVD/ref=sr_1_5?s=books&ie=UTF8&qid=1516724 216&sr=1-5&keywords=martin+shenkman or as a PDF download on www.estateplanning2018.com. Steve Leimberg recently noted that: Every tax professional in the country will (or should be) reading this book! This is the most complex and far reaching tax law passed in the over 50 years I’ve been studying, teaching, and writing about tax law and this resource arms you not only with the necessary and vital information you need to know but also the thinking and planning concepts of three of the brightest minds in the tax world!

Here is their commentary