Business Valuation

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Collateral Assignment Split Dollar Receivables

The Sponsor enters into a split dollar insurance agreement with the Trust.  The terms of the Agreement create a receivable due to the Sponsor from the Trust equal to the greater of (but it could also be the lesser) the cash surrender value of the Policy or the amount of premiums paid.   This receivable is called the Collateral Assignment Split Dollar Receivable (CASDR)

The receivable is due when the Insured dies or the Agreement is terminated.  However, the Sponsor is not able to unilaterally surrender the policy.  Thus, the liquidity is triggered by the death of the insured.  Therefore, there is no minimum value here  (as opposed to the valuation of life insurance policies).  The fair market value of the CASDR  is much lower than the Cash Surrender Value.

The valuation requires an actuarial calculation using mortality factors.  This lowers the valuation as the insured typically has a 40 year life expectancy.  The risks of the Collateral Assignment Split Dollar Receivable are high and can be compared to Viatical Settlements or Life Settlements.  Therefore, the fair market value of the CASDR is greatly reduced.  Our methods have resulted in discounts of 80%-95% of the premiums paid.   This is a great vehicle for the sponsor to lower the estate by gifting more during life time.