Private Split Dollar: Using Life Insurance for Estate and Business Planning 

Most people think of life insurance as a way to help protect loved ones after someone dies. While death benefit protection remains an important part of life insurance, certain planning arrangements can also help address financial and business objectives during your lifetime. 

One example is private split dollar. 

Private split dollar is not a life insurance product. Instead, it is a planning arrangement that allows two parties to share the costs and benefits of a life insurance policy to support a specific goal. Depending on how it’s structured, private split dollar may help address challenges related to business succession, estate planning and family wealth transfer.  

For individuals and families with more complex planning needs, it can provide flexibility that traditional approaches may not always offer. The degree of flexibility depends on the design of the arrangement, applicable tax rules and the terms established by the parties. 

What is private split dollar? 

At its core, private split dollar is an arrangement between two parties that share the costs and benefits of a life insurance policy. The structure can vary depending on the goal being addressed, but the arrangement is designed to clarify who owns the policy, who benefits from it and how premiums are funded.  

One of the key advantages of private split dollar is its flexibility. Life circumstances rarely stay the same forever. Businesses grow and change. Family priorities evolve. Retirement plans shift. A properly structured arrangement can help accommodate those changes rather than locking participants into decisions that may no longer make sense years later.  

While private split dollar isn’t appropriate for everyone, it is often considered by business owners, successful families and individuals with advanced planning needs who are looking for additional options beyond traditional planning strategies.  

Helping business owners navigate retirement transitions 

Business succession planning is often one of the most important financial decisions business owners face. 

Many businesses with multiple owners use buy-sell agreements to establish a framework for ownership transitions upon an owner’s death. These agreements can help create continuity and provide a clear path forward for the business and the remaining owners.  

Retirement, however, can introduce a different set of challenges. 

Traditional buy-sell arrangements frequently involve business owners owning life insurance policies on one another. When an owner retires, those policies may need to be transferred, replaced or otherwise restructured. Depending on the situation, that process can create complexity and raise tax considerations.  

A private split dollar arrangement may offer greater flexibility. Under certain structures, each owner may own a life insurance policy on their own life while sharing specific death benefit rights under a separate agreement. Because the arrangement supports the buy-sell strategy, changes related to a retirement or ownership transition can often be handled without transferring the policy itself. The availability of this feature depends on how the arrangement is designed and documented. 

For business owners who expect ownership to change over time, this flexibility may help support long-term succession planning goals. 

Supporting estate planning objectives 

As individuals build wealth, estate planning often becomes increasingly important. 

Many successful business owners and professionals find that a significant portion of their wealth becomes concentrated in a business, investment portfolio or other assets. At the same time, they may begin thinking more seriously about how to preserve wealth for future generations and help provide financial support for loved ones.  

Some people would like a trust to own a life insurance policy because of the role it can play in an estate plan. However, they may not be ready to make a large, permanent gift to the trust to fund the policy.  

In certain situations, a loan-based private split-dollar arrangement may help address that concern. 

With this approach, a trust owns the policy, while another individual provides funds through a documented loan arrangement to pay premiums. The trust receives the policy benefits, while the lender retains repayment rights defined by the agreement.  

For some families, this structure may help support estate planning goals while preserving flexibility if financial priorities change in the future. Rather than making a large outright transfer today, the arrangement can provide an alternative way to achieve long-term objectives while maintaining greater control over the transferred assets. These arrangements can be complex and may involve legal, tax, financing and administrative considerations that should be evaluated before implementation.  

Creating a legacy for future generations 

Many families want their financial success to benefit not only their children, but also future generations. 

Whether the goal is helping grandchildren pursue educational opportunities, supporting future family needs or creating a lasting financial legacy, wealth transfer planning often becomes a significant part of the conversation.  

An intergenerational private split dollar arrangement can be one way to support these objectives. 

In this type of arrangement, a trust owns a life insurance policy intended to benefit future generations. A family member helps fund the arrangement with a loan rather than an outright gift. The trust receives the policy benefits, while the repayment rights remain with the lender under the terms established in the agreement.  

Depending on the design of the arrangement and policy performance, this approach may provide additional resources for future generations compared with some other funding approaches. For families focused on legacy planning, it can be another tool to help achieve long-term wealth-transfer goals while balancing other planning considerations.  

Why planning ahead matters 

Like many advanced planning strategies, successful private split dollar arrangements begin with thoughtful design. 

Important considerations often include: 

• Who owns the life insurance policy. 
• Who receives the policy benefits. 
• How premiums will be funded. 
• How the arrangement may change over time. 
• How the arrangement is expected to end in the future.  

Planning for the ending can be just as important as planning for the beginning. Retirement, ownership transitions, changing family circumstances and evolving financial goals can all affect an arrangement over time. Building flexibility into the structure from the start may help participants adapt as life changes.  

How private split dollar can help 

Private split dollar is a flexible planning arrangement that can help address a variety of long-term goals. Whether the objective is supporting a business succession plan, enhancing estate planning flexibility or helping create a family legacy, the arrangement may provide opportunities that traditional approaches don’t always offer. 

Because these strategies can be complex and highly dependent on individual circumstances, it’s important to work with qualified financial, tax and legal professionals when evaluating whether a private split dollar arrangement may be appropriate for your situation. Understanding the opportunities early can help create greater flexibility as goals and circumstances evolve over time. 

Disclosures 

In approved states, life insurance is issued by Ameritas Life Insurance Corp. In New York, life insurance is issued by Ameritas Life Insurance of New York. Policies and riders may vary and may not be available in all states. Optional riders may have limitations, restrictions and additional charges. 

Representatives of Ameritas do not provide tax or legal advice. Consult your tax advisor or attorney regarding your specific situation. 

Private split-dollar arrangements are complex planning strategies involving life insurance, legal agreements and tax considerations. They are not suitable for everyone. Benefits and tax treatment depend on the specific arrangement, policy performance, applicable law and individual circumstances. Life insurance policies contain fees, expenses, limitations and charges and may lapse if required premiums are not paid. Split-dollar arrangements involve ongoing administration and may be affected by changes in tax laws, regulations and policy performance. Split-dollar arrangements should be implemented only after consultation with qualified legal, tax and financial professionals.