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1. Reduce taxes through current tax deductions.
2. Defer tax on earnings.
3. Structure tax-deductible buy/sell agreement.
4. Acquire tax-deductible life insurance.
5. Provide funds to pay estate taxes.
6. Solve a retained earnings problem.
7. Provide post-retirement benefits with tax-deductible contributions.
8. Provide tax-deductible educational benefits.
9. Reduce or eliminate taxes on the sale of a business.
10. Reduce or eliminate severe taxes on retirement plans and IRAs.
- No 10% early distributions tax
- No 20% withholding tax on distributions
- No Income tax (upon death)
- No Estate Tax (with proper structure)
- TAX FRIENDLY ENVIRONMENT
| Reg. sec. 1.162-10(a): contribution to a welfare plan is deductible provided |
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ordinary, necessary, reasonable
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not a plan of deferred compensation
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generally limits pre-funding
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At worst, deduction is permitted back-side
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No $30,000 limit
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"No effective deduction limitations in the Code." GCM 39440.
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Virtually unlimited if sec. 419 does not apply
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Reasonable compensation
Ability to pay
- risk tolerance
Greed
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Let the VEBA pay the premiums
Designate beneficiaries
Plan operates the same as traditional cross-purchase
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VEBA is an exempt organization
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taxed on UBTI
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certain income is not UBTI
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Use tax-free vehicles in post-1984 environment
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Life insurance products may be the only choice for MEWAs
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ERISA Section 514
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Required to avoid insurance company classification by States
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Risk minimization
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Life insurance products may be the only choice for MEWAs
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Claims risk
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Tax risk
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Maximum tax benefit
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Deduction (whether present or future)
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Gift tax minimized
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“P.S. 58” gift can be sheltered by annual exclusion
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VEBA death benefit tax-free. Sec. 101(a)
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Ross v. Odom; GCM 36969; PLR 8402016
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Confirmed again TAM 200002030
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Death benefit free of estate tax
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no incidents of ownership – Estate of DiMarco
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irrevocable designation of beneficiary- Est. of Connelly
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Use old ILIT money for deductions or bigger benefits
- ILIT trustee loans CSV to corporation
- Corporation contributes CSV to VEBA
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Deduction now available
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ILIT would be VEBA beneficiary to replace any lost death benefit and avoid breach of fiduciary duty
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New products usually result in greater benefits
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S Corp. assigns stock to tax-exempt VEBA trust
VEBA sells stock to buyer
No capital gain
VEBA uses proceeds for plan benefits
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Shelter excess proceeds from sale of a business...
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Tax Deductible Life Insurance (Single life & Survivorship)
Reduce retained earnings through VEBA contributions
Fund buy/sell insurance on a deductible basis
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Solve Over-funded Pensions / IRAs...
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