Advanced Markets Archives - Page 4 of 6

Life Insurance as Estate Tax Liquidity: Still Essential Under the $15M Exemption

September 25, 2026July 12, 2021 by Tim Fuller

Advisor and client reviewing an advanced markets estate planning strategy in a private office

With the federal estate tax exemption now permanently set at $15 million per person, fewer families face federal estate tax. For those who do, and for many who face state estate taxes, life insurance remains the most efficient way to pay the bill.

Key takeaways

The top federal estate tax rate is still 40% on amounts above the $15 million per-person exemption.
Life insurance owned by an irrevocable trust can deliver tax-free cash outside the taxable estate.
Permanent coverage also protects against future changes in tax law, which clients can’t predict.

Above the exemption, the federal estate tax still takes up to 40%. Life insurance can deliver the cash to pay it, without forcing a sale of the family business or property.

The estate tax picture today

The exemption has moved a lot: about $5 million (indexed) from 2011 to 2017, roughly double that from 2018 to 2025, and now $15 million per person from 2026 under the One Big Beautiful Bill Act. The rate on amounts above it is still 40%. See what the permanent $15 million exemption means for planning.

Who still faces estate tax

High-net-worth families with estates above $15 million per person, or $30 million per couple
Families whose estates are likely to grow past the exemption over their lifetimes
Residents of states that impose their own estate or inheritance tax, often at much lower thresholds

Why life insurance is the right tool

Estates are often rich in assets but short on cash: a family business, farmland, or real estate. Without liquidity, heirs may have to sell assets, sometimes at the wrong time, to pay taxes due within nine months of death. Permanent life insurance owned by an irrevocable life insurance trust (ILIT) pays a death benefit that is generally income-tax-free and kept outside the taxable estate, providing cash exactly when it’s needed.

Planning for an uncertain future

No one can predict future tax law. A properly structured permanent policy gives families flexibility regardless of what Congress does, with level premiums and cash value that can support other goals. Contact us to run a survivorship or single-life design for your client.

Frequently asked questions

Is life insurance subject to estate tax?

It can be if the insured owns the policy. Having an irrevocable life insurance trust own it generally keeps the death benefit outside the taxable estate.

What is the federal estate tax rate?

The top rate is 40% on the amount of the taxable estate above the exemption.

Why use life insurance to pay estate taxes?

It provides cash at death, generally income-tax-free, so heirs don’t have to sell a business, real estate, or other assets to pay the tax.

50+ Years in Business60+ Top-Rated Carriers★★★★★ Rated by Advisors

Reviewed by Tim Fuller on 2026-09-25

Tim Fuller

President, SRS Inc.

Tim leads SRS Inc., a full-service IMO (Independent Marketing Organization) and BGA (Brokerage General Agency), connecting independent financial professionals with life, annuity, disability income, and long-term care solutions from 60+ carrier partners.

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Business Valuation for Buy-Sell and Key Person Planning: Informal Options

September 26, 2026July 6, 2021 by Tim Fuller

Long-time business owners often overvalue their company because of emotional attachment, or undervalue it because they have never seen it from the outside. Either way, a realistic valuation is the starting point for good business planning. It doesn’t always require an expensive formal appraisal.

Key takeaways

A realistic business value matters for retirement planning, fair buy-sell terms and financial justification of coverage.
Formal valuations can cost $20,000 or more, which keeps many owners from getting one.
Some carriers offer free informal valuations using a simple questionnaire and three years of financial statements.

A formal valuation can run as high as $20,000, which is why many owners never get one.

Why owners need a realistic valuation

Retirement planning. Many owners count on the sale of the business as a major retirement asset.
Fair transition terms. A buy-sell or other transition agreement should be reasonable and equitable for everyone.
Financial justification. If the buyout is insured, carriers need a supportable value to justify the coverage amount.

Our article on buy-sell planning for business transitions explains how the value flows into the agreement.

Price vs. value

A real estate agent we know describes long-time homeowners who see the staircase their children crept down every Christmas morning, while buyers see a loose banister and worn carpet. Business owners can face the same gap. Part of an advisor’s role is to gently bring an outside view into the conversation.

Informal valuations at no cost

Formal valuations are thorough but can cost $20,000 or more. For planning purposes, an informal valuation is often enough. We work with carriers that, as a service, prepare informal business valuations from a simple questionnaire and three years of financial information. The results:

Estimate the company’s worth using several common valuation methods
Are formatted for the client and their tax and legal advisors
Support coverage amounts for buy-sell and key person coverage

Availability varies by carrier, so contact us to confirm current programs.

How SRS supports the process

We can help you gather the data, request the valuation and present the findings to the client and their advisors. Contact us to start a valuation for a business owner client.

Frequently asked questions

Why does a business owner need a valuation for life insurance?

Carriers need a supportable business value to justify buy-sell and key person coverage amounts, and the agreement’s price should reflect what the business is actually worth.

How much does a formal business valuation cost?

A thorough formal valuation can cost $20,000 or more depending on the business and the appraiser.

What is needed for an informal valuation?

Typically a short questionnaire about the business and three years of financial statements.

50+ Years in Business60+ Top-Rated Carriers★★★★★ Rated by Advisors

Reviewed by Tim Fuller on 2026-09-26

Tim Fuller

President, SRS Inc.

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When the Policy Owner Dies First: Why Contingent Owners Matter

September 26, 2026June 29, 2021 by Tim Fuller

Advisors spend a lot of time choosing contingent beneficiaries, but far less on contingent owners. When the owner and insured are different people and the owner dies first, the policy contract, not the owner’s will, decides who owns the policy next. One real case shows how badly that can go.

Key takeaways

When an owner dies before the insured, many policies default ownership to the insured, regardless of the owner’s will.
If the insured is a minor, changing ownership may require a court order naming a guardian of the minor’s property.
Naming a contingent owner, or using a trust as owner, avoids probate delays and unintended control.

The carrier’s answer: we must follow what the contract states, not what was indicated in the will.

The case: a grandfather, a grandchild and a will

A single grandfather wanted to buy coverage on his five-year-old grandchild. He loved the child’s parents but worried they might tap the cash value during hard times. The agent suggested a trust, but the family’s attorney didn’t like living trusts. Instead, he drafted a new will with a testamentary trust to receive the policy at the grandfather’s death, and the grandfather was named owner.

Two problems should have been considered. If the child died first, the proceeds would be part of the grandfather’s estate. If the grandfather died first, the policy would go through probate before reaching the trust.

What actually happened

The grandfather died first. When the executor tried to move ownership to the testamentary trust, the carrier explained that under the application, ownership automatically reverted to the insured, the minor grandchild. The carrier had to follow the contract, not the will.

To change ownership, the family would need a court order naming a legal guardian of the minor’s property. Otherwise, no transactions would be allowed until the child reached age 15. Even after the court process, the likely result was exactly what the grandfather wanted to avoid: the parents controlling the policy.

Why this is more common than you think

Default-owner provisions naming the insured are common. The issue rarely comes up because the owner is usually the insured, an entity that doesn’t die (like a trust) or a younger person. But it happens often enough that at least one major carrier has staff dedicated to “dead owner” cases.

How to prevent it

Whenever owner and insured differ, name a contingent owner on the application.
Consider a trust as owner when control matters. Our guide to trust types covers the options.
When a minor is involved as insured or beneficiary, review how the contract handles ownership and payouts. See our article on naming minors as beneficiaries.

Frequently asked questions

What happens to a life insurance policy when the owner dies before the insured?

Ownership passes to the named contingent owner. If none is named, many contracts default to the insured, or to the owner’s estate, depending on the policy language.

Does a will control who owns a life insurance policy?

Not necessarily. The carrier follows the contract. If the policy names a contingent owner or has a default provision, that generally controls over the will.

How can a client avoid ownership problems?

Name a contingent owner whenever the owner and insured are different, or have a trust own the policy.

50+ Years in Business60+ Top-Rated Carriers★★★★★ Rated by Advisors

Reviewed by Tim Fuller on 2026-09-26

Tim Fuller

President, SRS Inc.

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Golden Handcuffs: Vesting Schedules in Executive Bonus Plans

September 26, 2026June 22, 2021 by Tim Fuller

A Section 162 executive bonus plan is one of the simplest ways to reward key employees. Its biggest drawback has always been control: the executive owns the policy and can walk away with it. A vesting-style repayment schedule and a restriction endorsement can add the “golden handcuffs” employers want.

Key takeaways

In a basic 162 plan, the employer pays the premium as a deductible bonus and the executive owns the policy.
A repayment obligation that phases out over time creates a vesting schedule without turning the plan into split dollar.
A restriction endorsement filed with the carrier limits the executive’s access to the policy during the vesting period.

The loss-of-control problem can be reduced, if not eliminated, with two simple features.

Why executive bonus plans are getting attention

Qualified plans have non-discrimination limits. Deferred compensation and split dollar plans can involve significant regulation, administration and reporting. The Section 162 executive bonus plan stands out for its simplicity: the employer pays the premium, deducts it as compensation and reports it as income to the executive, who owns the policy.

The catch is that if the executive leaves, the policy, and the employer’s investment, goes with them.

Feature 1: A repayment schedule that vests

The bonus agreement can require the executive to repay some or all of the bonuses if they leave early. The obligation typically phases out over time, for example a declining percentage each year, creating a vesting schedule similar to repayment terms on relocation expenses.

Because the employer has no interest in the policy, the plan doesn’t drift into split dollar territory. And because no compensation is deferred, the deferred compensation rules generally don’t apply. Clients should have their legal advisor draft the agreement.

Feature 2: A restriction endorsement

A restriction on the owner’s rights can be filed with the carrier. For the agreed period, the executive can’t surrender, borrow from or change the policy (other than the beneficiary) without the employer’s consent. That locks the policy down and gives the employer time to enforce its right to recover premiums if needed. Availability of restriction endorsements varies by carrier.

Designing the plan

Vesting schedules work well alongside other design choices, such as whether the employer also bonuses the tax. See our article on single vs. double bonus plans. Many designs use cash value products; we also cover funding executive bonus plans with indexed UL.

We provide case design, documentation and presentation support. Contact us to discuss a business owner client.

Frequently asked questions

What is a golden handcuff in an executive bonus plan?

It is a provision, usually a repayment obligation and a policy access restriction, that encourages a key employee to stay by making early departure costly.

Does a repayment schedule make the plan split dollar?

Not if the employer has no ownership interest in the policy. The repayment is a contractual obligation between employer and employee.

Is the executive bonus deductible to the employer?

Generally yes, as reasonable compensation. The bonus is taxable income to the executive. Clients should confirm with their tax advisor.

50+ Years in Business60+ Top-Rated Carriers★★★★★ Rated by Advisors

Reviewed by Tim Fuller on 2026-09-26

Tim Fuller

President, SRS Inc.

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Life Insurance and Irrevocable Trusts: What to Do When the Trust Isn’t Ready

September 26, 2026June 15, 2021 by Tim Fuller

Many large life insurance cases are meant to be owned by an irrevocable trust, and the trust is often the last piece to come together. Clients understandably don’t want to pay for a trust until they know they’re insurable. That leaves advisors managing a carrier deadline they don’t fully control.

Key takeaways

Underwriting can start before the trust exists by listing the owner and beneficiary as “trust TBD” and submitting a corrected application before issue.
If the trust isn’t ready at delivery, having the insured own the policy and later sell it to a grantor trust avoids the three-year look-back and transfer-for-value problems.
Using a “surrogate owner” who later gifts the policy is risky and can create gift or estate tax exposure.

The best fix is prevention: once a medical offer makes the trust necessary, hire an attorney who commits in writing to a timeline.

How trust-owned cases usually unfold

The typical sequence looks like this:

The client applies and waits for an offer before spending money on legal work.
Once the offer arrives, the client meets with an attorney to decide what they want.
The attorney drafts the trust, often slower than anyone expected.
The carrier’s offer deadline approaches, and the trust still isn’t signed.

Sometimes an extension buys time. Sometimes it doesn’t. Planning for this from the start keeps a good offer from slipping away.

Starting underwriting before the trust exists

There’s no need to wait for the trust to begin processing and underwriting. Have the proposed insured (who will also be the trust’s grantor) sign the application as insured, and show the owner and beneficiary as “trust TBD.”

Because the application becomes part of the policy, a new ownership page (Part I) will be needed before issue, once the trust is established. The trustee signs as owner and the trust is named as beneficiary.

If the trust isn’t done by the delivery deadline

Two common approaches come up when the deadline arrives first:

Insured owns, then sells to a grantor trust. The insured accepts the policy personally and later sells it to the trust. Because it’s a sale rather than a gift, the three-year look-back for gifted policies doesn’t apply, and because the buyer is a grantor trust, transfer-for-value is generally not an issue. Our article on grantor trusts explains why.
Surrogate owner who later gifts the policy. Someone else owns the policy temporarily and is expected to gift it to the trust. This is risky: nothing guarantees the surrogate will make the gift, and if the insured dies early the proceeds may not end up where intended. Gift or estate tax consequences can follow.

Either path should be reviewed with the client’s attorney and tax advisor before delivery.

Preventing the problem in the first place

As soon as a medical offer makes the trust necessary, encourage the client to engage an estate planning attorney who will confirm in writing that the documents will be ready in time. Share the carrier’s delivery deadline with the attorney early.

Our Advanced Markets team helps with cases involving insurance in all types of trusts, including irrevocable, revocable, charitable and special needs trusts. Contact us before the deadline gets tight.

Frequently asked questions

Can I submit a life insurance application before the ILIT is signed?

Yes. The insured can sign as proposed insured with owner and beneficiary shown as “trust TBD.” A corrected ownership section is submitted once the trust exists and before the policy is issued.

Does selling a policy to a grantor trust trigger the three-year rule?

The three-year look-back applies to gifted policies. A bona fide sale to the insured’s grantor trust generally avoids it, and the grantor trust exception typically avoids transfer-for-value. Confirm with counsel.

Why is a surrogate owner risky?

The surrogate has legal ownership and no binding obligation to gift the policy on time. If the insured dies first, the proceeds may go to the wrong party and create gift or estate tax problems.

50+ Years in Business60+ Top-Rated Carriers★★★★★ Rated by Advisors

Reviewed by Tim Fuller on 2026-09-26

Tim Fuller

President, SRS Inc.

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Choosing a Trustee for an ILIT: Individual vs. Corporate

September 26, 2026May 25, 2021 by Tim Fuller

An irrevocable life insurance trust (ILIT) can keep a large death benefit out of a client’s taxable estate, but only if it’s administered correctly year after year. That makes the choice of trustee one of the most important decisions in the plan. Here’s how individual and corporate trustees compare, and the duties either one must handle.

Key takeaways

The trustee must actually receive gifts, send Crummey notices and pay premiums; shortcuts like having the grantor’s business pay the carrier directly invite IRS challenges.
Family members and friends cost little but may lack the time, expertise or longevity to administer the trust for decades.
Corporate trustees charge fees but bring continuity, recordkeeping and objectivity, and some families use a hybrid approach.

If premium dollars simply fly over the trust each year, the IRS has a strong argument that the beneficiaries’ present interest is an illusion.

What an ILIT trustee actually has to do

Whoever serves as trustee takes on real, recurring responsibilities:

Maintain a trust bank account and receive the grantor’s annual gifts into it
Send timely Crummey notices informing beneficiaries of their right to withdraw contributions
Be able to honor a withdrawal request if a beneficiary exercises it
Pay premiums from the trust account to the carrier
Keep records, file any required returns, and review the policy’s performance
Collect and distribute the death benefit according to the trust terms

A properly drafted ILIT allows the trustee to buy insurance on the grantor but doesn’t require it, which helps avoid any argument that the grantor controls the policy.

The shortcut that creates risk

It’s tempting to skip the trust account and have the grantor, or the grantor’s business, pay the carrier directly. There is at least one IRS private letter ruling in which the Service recharacterized that kind of payment as income to the grantor, a gift to the trust and a premium payment by the trustee, without finding an incident of ownership. But relying on that reasoning is risky.

If annual exclusion gifts are part of the plan, the beneficiaries’ withdrawal right has to be real. When the only trust asset is the policy and cash never passes through the trust, the present interest needed for the exclusion can be challenged. Direct payments can also suggest the grantor is effectively forcing the trustee to buy coverage.

Individual trustees: pros and cons

Clients often name a sibling, adult child, friend or godparent of the beneficiaries.

Advantages: little or no cost, personal knowledge of the family, and flexibility.
Drawbacks: limited expertise, competing priorities, and the risk that they move, retire, become ill or simply forget to pay a premium years down the road.

An individual trustee should not be the insured, and naming a beneficiary as trustee requires careful drafting. Successor trustees should always be named.

Corporate trustees and hybrid approaches

A bank or trust company brings continuity, established procedures and objectivity, which can be valuable for large policies or families with potential conflicts. The trade-off is annual fees, sometimes subject to minimums, and a less personal relationship.

Some families split the roles: a corporate trustee handles administration while a trusted individual serves as co-trustee or trust protector. Whatever the choice, the insurance advisor isn’t legally responsible for trust administration, but an annual check that premiums, notices and records are in order is good client service. Our articles on grantor trusts and estate tax liquidity cover related planning, and our Advanced Markets team is available for trust casework.

Frequently asked questions

Can the insured be the trustee of their own ILIT?

Generally no. Serving as trustee could give the insured incidents of ownership in the policy and pull the death benefit back into their taxable estate.

What are Crummey notices?

Written notices telling ILIT beneficiaries they have a limited time to withdraw contributions made on their behalf. They help gifts to the trust qualify for the annual gift tax exclusion.

When does a corporate trustee make sense?

Often for large policies, long time horizons, blended families or situations where no family member has the time or objectivity to administer the trust reliably.

50+ Years in Business60+ Top-Rated Carriers★★★★★ Rated by Advisors

Reviewed by Tim Fuller on 2026-09-26

Tim Fuller

President, SRS Inc.

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Family Business Succession: Getting Reluctant Owners to Start the Conversation

September 26, 2026May 24, 2021 by Tim Fuller

Passing a family business to the next generation is one of the hardest things an owner will ever do. Founders often delay because the topic touches control, family relationships and their own mortality. Advisors who can open that door gently are positioned for some of the most meaningful, and largest, cases they’ll ever write.

Key takeaways

Research on family businesses has long found that fewer than one-third survive into the second generation and only about 13% reach the third.
Succession worries show up in the next generation too: children wonder when the founder will retire and whether they’ll ever own stock.
Insurance funds much of the plan, including buy-sell agreements, estate liquidity and equalization among heirs.

As family business advisors like to say, family businesses have only three problems: succession, succession and succession.

Why succession is the biggest threat to family firms

Competition, regulation and taxes all matter, but poor succession planning is widely considered the greatest threat to a family business’s survival. Many founders approach retirement with no plan, or with a plan that won’t produce the results they want. Family business research, including work by Craig Aronoff and colleagues, has found that fewer than one-third of family businesses make it to the second generation and only about 13% to the third.

What the next generation is thinking

Owners aren’t the only ones worried. Children and other family members in the business often raise concerns like these:

“I don’t think Dad is ever going to retire. What future does that leave me?”
“I’m not sure I’ll ever own stock in the business. Why should I stay?”
“How am I going to work with my siblings once the founder is gone?”

Surfacing these questions, respectfully, can motivate an owner who has been putting the conversation off.

How to open the conversation

Start with the owner’s goals, not products: when do they want to step back, and what does success look like for the family?
Ask about “what if” scenarios: death, disability or an unexpected offer to buy the company.
Bring in the team: attorney, CPA and valuation professional, with you coordinating the insurance pieces.
Use a fact finder so the owner sees the plan is built on their own information.

Where insurance fits

Once goals are clear, insurance often funds the plan: buy-sell agreements between family owners, key person coverage while successors develop, and estate liquidity so heirs don’t have to sell the business to pay estate taxes. See our articles on succession planning for family-owned businesses and estate tax liquidity.

Our Advanced Markets team can help you prepare for the first meeting and design the insurance strategy. Contact us to set up a consultation.

Frequently asked questions

What percentage of family businesses survive to the next generation?

Long-cited family business research puts it at fewer than one-third surviving into the second generation and about 13% into the third.

Why do business owners avoid succession planning?

It involves giving up control, making decisions among family members and confronting mortality. Many owners are also simply focused on day-to-day operations.

How does life insurance support a family business succession plan?

It can fund buy-sell agreements, protect against loss of a key person, provide estate tax liquidity and equalize inheritances between heirs who are and aren’t active in the business.

50+ Years in Business60+ Top-Rated Carriers★★★★★ Rated by Advisors

Reviewed by Tim Fuller on 2026-09-26

Tim Fuller

President, SRS Inc.

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Executive Bonus Plans 101: How Section 162 Plans Work

September 26, 2026May 17, 2021 by Tim Fuller

Business owners are always looking for ways to recruit, reward and keep key people. A Section 162 executive bonus plan is one of the simplest: the business pays for a life insurance policy the executive owns, and deducts the cost as compensation. There are no discrimination rules and no IRS approval required.

Key takeaways

The employer can choose who participates and generally deducts the bonus as compensation.
The executive owns the policy, reports the bonus as income, and keeps the cash value and death benefit.
A double bonus can cover the executive’s income tax so the benefit costs them nothing out of pocket.

The employer picks who to reward, deducts the cost, and the executive owns a portable policy with cash value.

How the plan works for the employer

Pays the agreed life insurance premium as a bonus
Has no ownership rights in the executive’s policy
Reports the bonus on the employee’s W-2
Generally deducts the bonus as reasonable compensation and an ordinary business expense

How the plan works for the executive

Is the applicant, owner and insured on the policy
Names their own beneficiary
Pays ordinary income tax on the bonus, unless the employer also pays a tax bonus
Benefits from cash value accumulation and the death benefit for personal needs

Because the executive owns the policy, it’s fully portable if they leave. They can keep funding it personally.

Single vs. double bonus

With a single bonus, the executive pays tax on the premium amount. With a double bonus, the employer also pays a cash bonus to cover that tax, so the executive’s after-tax cost is zero. Our article on single vs. double bonus walks through the math.

When to consider a restricted plan

A basic 162 plan rewards key people but doesn’t tie them to the company. Employers who want “golden handcuffs” can use a restrictive endorsement or vesting schedule that limits the executive’s access to cash value until they meet service requirements. Plans can also be designed with long-term care or chronic illness benefits.

Contact our Life Sales team to design an executive bonus plan for your business owner clients.

Frequently asked questions

Is an executive bonus plan tax deductible?

Generally yes. The employer deducts the bonus as compensation, provided total compensation is reasonable. The executive reports the bonus as taxable income.

Does an executive bonus plan have to include all employees?

No. It is not a qualified plan, so the employer can select which employees participate and how much each receives.

What happens if the executive leaves the company?

The executive owns the policy and keeps it. Unless a restrictive endorsement or vesting arrangement applies, they can continue paying premiums personally.

50+ Years in Business60+ Top-Rated Carriers★★★★★ Rated by Advisors

Reviewed by Tim Fuller on 2026-09-26

Tim Fuller

President, SRS Inc.

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Life Insurance Ownership and Beneficiary Designations: Do’s and Don’ts for Taxable Estates

September 26, 2026May 11, 2021 by Tim Fuller

Once a policy is in force, two things matter most: who owns it while the insured is alive, and who receives the money at death. Yet applications give those designations tiny boxes, which encourages quick answers that can cause serious tax and probate problems. A real case shows what can go wrong.

Key takeaways

When owner, insured and beneficiary are three different parties, the death benefit can be treated as a taxable gift from the owner to the beneficiary.
Policies bought to pay estate taxes are usually owned by an irrevocable trust, not the insured, the spouse or the business.
Always name contingent beneficiaries and owners, and attach a separate page when the boxes are too small.

The little boxes on the application encourage short answers that seem workable at the time but can end in disaster.

A rushed case

A business owner needed several million dollars of coverage for anticipated estate taxes. A good underwriting offer was about to expire, and no one had time to meet about structure. The day before the deadline, the instructions came in: the company would own the policy, since it was paying the premiums, and the insured’s wife would be the beneficiary.

The good news was that coverage was in force. The rest created problems.

What went wrong

An “unholy triangle.” With the company as owner, the insured as insured and the wife as beneficiary, payment of the death benefit could be treated as a taxable distribution or transfer. Depending on how the company was taxed, it might not have been a problem, but no one thought it through.
Estate tax exposure. Paying the benefit to the spouse increases the couple’s combined taxable estate, which defeats the purpose of coverage bought to pay estate taxes. Such policies are normally held by an irrevocable trust whose beneficiaries are the insured’s heirs.
No contingent beneficiary. If the wife died first, the proceeds could default to the owner or to the insured’s estate, sending millions through probate with its cost, delay and publicity.

Three rules to live by

Use a separate page. Be ready to submit ownership and beneficiary instructions on a separate sheet that is referenced in and made part of the application.
Name contingents. Whenever a primary owner or beneficiary is a natural person, name contingent owners and beneficiaries.
Plan structure during underwriting. Settle the ownership structure, often an ILIT, while the case is being underwritten so the deadline doesn’t force a bad choice.

With the federal estate tax exemption now $15 million per person, fewer clients face estate tax, but those who do face a 40% top rate. See our articles on the $15 million exemption and beneficiary reviews.

Get help with the wording

We can help you draft clear designations for primary and contingent parties and, when needed, confirm the language with the carrier’s claims department before issue. It always works better when you think outside the box.

Frequently asked questions

What is the “unholy triangle” in life insurance?

It’s when the owner, insured and beneficiary are three different parties. At the insured’s death, the owner is treated as transferring the proceeds to the beneficiary, which can create a taxable gift or other tax consequences.

Who should own a life insurance policy meant to pay estate taxes?

Usually an irrevocable life insurance trust, so the death benefit stays out of the insured’s and spouse’s taxable estates. Confirm structure with the client’s estate attorney.

What happens if there’s no contingent beneficiary?

If the primary beneficiary dies first, proceeds typically go to the owner or the insured’s estate under the policy’s default terms, which can mean probate delays, costs and publicity.

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Reviewed by Tim Fuller on 2026-09-26

Tim Fuller

President, SRS Inc.

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Executive Bonus vs. Death Benefit Only Plans: Two Sides of the Same Coin

September 26, 2026May 4, 2021 by Tim Fuller

Every employer wants cost-effective ways to keep key people. Two of the simplest non-qualified benefits both use life insurance: the executive bonus plan, the most common, and the death benefit only (DBO) plan, the most overlooked. The biggest difference between them is control if the executive leaves.

Key takeaways

In an executive bonus plan the executive owns the policy; in a DBO plan the employer owns it.
Executive bonus premiums are deductible to the employer and taxable to the executive; DBO premiums aren’t deductible or taxable to anyone.
DBO benefits paid to the family are deductible to the employer and taxable to the beneficiary, and employer-owned coverage must meet notice and consent rules.

Both plans keep key people with life insurance. The difference is who keeps control if the executive walks out the door.

How each plan works

Executive bonus: the employer pays premiums on a policy the executive owns. The executive names the beneficiary and keeps the policy if they leave.

Death benefit only: the employer promises to pay a benefit to the executive’s named beneficiary if the executive dies while employed. The employer buys and owns a policy to fund that promise. Either plan can use permanent or term insurance. With DBO, many employers roll the policy out to the executive at retirement; even term coverage can be valuable then because of conversion privileges, especially if the executive has developed health issues.

Side-by-side comparison

Policy owner: Executive bonus, the executive. DBO, the employer.
Who pays premiums: The employer in both.
Premium taxation: Executive bonus premiums are generally deductible to the employer and taxable to the executive. DBO premiums are not deductible and not income to the executive.
Death during employment: Executive bonus proceeds go income-tax free to the executive’s beneficiary. Under DBO, the employer generally receives proceeds tax-free (if employer-owned life insurance notice and consent requirements are met), then pays the promised benefit, which is deductible to the employer and taxable income to the beneficiary.
After the executive leaves: Executive bonus, the executive keeps the policy. DBO, no benefit to the family; the employer still owns the policy.

Choosing between them

Executive bonus is simple and portable, which makes it a strong recruiting and reward tool, but it offers little retention on its own unless a restrictive endorsement or vesting schedule is added. DBO gives the employer more control and a strong incentive for the executive to stay, since the benefit ends with employment. See our articles on executive bonus plans and single vs. double bonus.

Contact us to talk through executive benefits and the business planning conversations you should be having with every business owner client.

Frequently asked questions

What is a death benefit only plan?

An employer promise to pay a benefit to an employee’s beneficiary if the employee dies while employed, usually funded by a company-owned life insurance policy.

Are DBO plan benefits taxable?

The benefit paid to the family is generally taxable income to the beneficiary and deductible to the employer. The employer usually receives the policy proceeds tax-free if employer-owned life insurance rules are followed.

Which plan is better for retaining key employees?

A DBO plan typically offers stronger retention because the benefit ends if the executive leaves. An executive bonus plan can add retention with a restrictive endorsement or vesting schedule.

50+ Years in Business60+ Top-Rated Carriers★★★★★ Rated by Advisors

Reviewed by Tim Fuller on 2026-09-26

Tim Fuller

President, SRS Inc.

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Life Insurance as Estate Tax Liquidity: Still Essential Under the $15M Exemption

The estate tax picture today

Who still faces estate tax

Why life insurance is the right tool

Planning for an uncertain future

Frequently asked questions

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Why owners need a realistic valuation

Price vs. value

Informal valuations at no cost

How SRS supports the process

Frequently asked questions

Tim Fuller

We’re Here to Help

Tim Fuller

We’re Here to Help

Tim Fuller

Tim Fuller

Tim Fuller

Tim Fuller

Tim Fuller

Tim Fuller

Tim Fuller