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Death Benefit Plans

A Tax Planning Tool for Family-Owned Businesses

A death benefit plan can help reduce your taxes and generate income for your family. Under this type of plan, your company agrees to pay a death benefite equal to two times your salary to one of your heirs. Your business can purchase term or whole life insurance to fund all or a portion of the benefit.
The advantages to this type of 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.
Potential drawbacks:
  • If you wish to retain the right to change the beneficiary or if you have the right to receive an annuity from the policy, the proceeds will be included in your estate.
  • The death benefit payments are income to the beneficiary.
There are many situation in which a death benefit plan can be a useful planning tool for your business. It is an excellent source of income shifting and deferral.
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