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TAX TRENDS
Analysis of and reflections on
recent cases and rulings.
Author: (split-dollar arrangements) that required
James A. Beavers, CPA, CGMA, Estates, Trusts & Gifts her revocable trust to pay premiums for
J.D., LL.M. life insurance policies taken out on the
Tax Court determines value of lives of Nancy and Nancy’s husband,
receivable from a split-dollar Larry. Pursuant to the arrangements,
life insurance arrangement when they terminated, Levine’s revo-
The Tax Court held that the value in- cable trust had the right to be paid the
cludible in a taxpayer’s gross estate for greater of the premiums it paid or the
a receivable created under split-dollar cash-surrender value of the policies (the
The value of a life insurance arrangements was the split-dollar receivable). An irrevocable
receivable created stipulated value of the receivable, not life insurance trust (the insurance
trust) was set up to be the owner of
the much higher cash-surrender value of
by split-dollar the insurance policies purchased under these policies.
life insurance the arrangements. Levine’s children and grandchildren
arrangements is Background were the beneficiaries of the insurance
trust, and Larson was the sole member
the receivable’s Marion Levine, throughout her life, of the investment committee that man-
value, not the cash- had been a successful entrepreneur and aged the trust. Larson, Robert, and
businessperson. She and her husband
Nancy also acted as Levine’s attorneys-
surrender value bought a single grocery store in 1950 in-fact and as the revocable trust’s
of the insurance and over the years built it into a 27-store successor co-trustees (and, after 2005,
purchased under the chain. After her husband died, she took its co-trustees). As the sole member of
over the business and sold it in 1981 for
the irrevocable trust’s investment com-
arrangements; no $5 million. She took the proceeds from mittee, only Larson had the right to
deduction is allowed the sale and successfully reinvested the prematurely terminate the life insurance
money into other businesses that she
policies: The arrangements gave Levine,
in the year of sale actively participated in, increasing her Robert, and Nancy no rights to termi-
of a basketball net worth to $25 million. nate the policies or the arrangements
themselves. In 2009, shortly after the
In 1988 she took a first step in estate
team for deferred planning, creating a revocable trust with split-dollar arrangements were fully set
compensation owed herself as trustee. Her son, Robert, her up, Levine died.
Recognizing that Levine, through
to two of the team’s daughter, Nancy, and her longtime ac- her revocable trust, had made gifts to
countant and business adviser, Bob Lar-
players. son, were successor trustees of the trust, the insurance trust and its beneficiaries, PHOTO BY ARCHEOPHOTO/ISTOCK
and Robert, Nancy, and their children the attorneys-in-fact filed gift tax
were the trust’s beneficiaries. returns on Forms 709, United States
In 2008, Levine entered into split- Gift (and Generation-Skipping Transfer)
dollar life insurance arrangements Tax Return, for 2008 and 2009. Each
56 May 2022 The Tax Adviser
