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5. The Death Benefit Option Agreement
On October 15, 1997, petitioner, as trustee of the Addis
family trust, and NHF entered into a death benefit option
agreement (DBOA)3 relating to the life insurance policy on the
life of Mrs. Addis. Petitioner agreed to pay $4,000 of the
$40,000 annual premium on the life insurance policy. Petitioner
and NHF agreed that, if NHF paid $36,000 of the annual premium,
NHF would become entitled to $557,280 of the death benefit under
that policy. The DBOA provides that the Addis family trust and
NHF each own a separate interest in the life insurance policy.
The DBOA remained in effect throughout 1998.
6. Petitioners’ Payments to NHF and Commercial Union Life
Around November 12, 1997, petitioners sent a check for
$36,000 to NHF for their family foundation. Petitioner’s letter
to NHF stated that NHF was not required to use the payment to pay
the premium on the life insurance policy, but that petitioner
expected NHF to use the $36,000 payment to pay those premiums.
On November 13, 1997, petitioners paid Commercial Union Life
their $4,000 portion of the $40,000 annual premium.
On November 19, 1997, NHF credited $36,000 to the Addis
family foundation account. Simultaneously, NHF debited the Addis
family foundation account $36,000 to pay NHF’s portion of the
3 The DBOA is also referred to as a charitable split-dollar
life insurance transaction.
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Last modified: May 25, 2011