Problem: Many businessowners would like to provide a life insurance benefit on a selective basis to deserving key employees. Not only do they want to deduct the premium costs of the plan, the businessowners also want to control the plan values until the employee is ready to retire.
Solution: A custodial executive bonus plan builds on a standard executive bonus plan, but adds the extra feature of employer control. The businessowner deducts the bonuses as a business expense and the employee is taxed on the amounts as additional compensation.
The businessowner and the employee enter into a legal agreement which details the restrictions placed on the employee's inability to exercise any ownership rights (except the right to name the beneficiary) without the businessowner's consent. While the employee owns the policy, the businessowners have veto power on important policy decisions. The restrictions stay in place until a stated time or event (i.e., when the employee retires or satisfies a length of service requirement).
Reference: Executive Bonus Plan Adviser Guide (Form 1470), Executive Fringe Benefits (Form 2416), Side By Side Business Insurance Plan Comparisons (Form 2415), Client PowerPoint Presentation (ON-Net software download).
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