Making the Case for Split-Dollar Plans

To the Editor:

As the C.E.O. of the largest promoter of charitable split-dollar plans, I would like to respond to your August 13 article “Brilliant Deduction?” Keep in mind that since InsMark’s Charitable Legacy Plan is the most prevalent of these plans, when you speak of the “typical plan” you are likely to be speaking of our plan.

In the Charitable Legacy Plan, the donor neither controls any aspect of the insurance policy nor is a party to the agreement with the charity. He or she simply makes a gift to the charity which is truly unrestricted in nature.

If the charity enters into a split-dollar agreement with the policy owner, it does so because it deems that to be its best economic decision among alternatives that include investing the gift or using it for current purposes.

Though the donor is usually close to the policy owner or the family of the policy owner, our legal advisers are satisfied that the distance is sufficient to avoid a successful challenge by the I.R.S. and that there are more than ample precedents in case law to support that position.

You also mention that InsMark has created between 800 and 1,000 plans. In fact, InsMark provides software, training, and licensing to a select group of professionals at the top of the financial-planning, insurance, and estate-planning industries, and these are the people who have created the plans as part of their practices. Many of these individuals have been involved with charitable fund raising for years.

You also write that Frank Minton, ethics chairman of the National Committee on Planned Giving, said that his group was thinking of plans like InsMark’s when it issued its warning on split-dollar plans, and also that the committee worried that a donor or donor’s trust “might cancel a policy prematurely and pocket the cash-value portion while leaving the charity with nothing.”

Mr. Minton should have gotten his facts straight about InsMark’s plans, especially when he and a few other members of the board of an organization like the N.C.P.G. decide that it is their responsibility to make position statements about “typical” charitable split-dollar plans — without, as we understand it, benefit of local delegate input.

In our agreements, the policy owner does not have the unilateral right to terminate the plan. This can only be done with the consent of the charity. Further, the policy owner is enforceably prohibited from making policy loans or withdrawals that would contaminate any of the charity’s rights under the agreement. Additionally, our administrative-services company, OnTrak, is responsible for making sure that none of these events happens accidentally.

My next major issue is with the tone you let creep into your article. Terms and phrases like “insurance deals” and “critics scoff” — and sub-headings like “High-Risk Venture” and “Fatal Flaws” — carry their own weight and should have been tempered.

One important point that is not made clear in your article is that although there are seasoned charitable advisers like Douglas Freeman who have come out against charitable split-dollar plans, there are as many attorneys, accountants, and other advisers equally qualified in this area who strongly support the concept if it is applied correctly and the charity is provided with a reasonable return on its investment. As you indicate in your article, Emanuel Kallina, who sits on the board of N.C.P.G., is one of these, and there are many more who advise our licensees, their clients, and the charities who enter into Charitable Legacy Plan agreements.

One of the biggest criticisms lodged against charitable split-dollar plans is that the charity gets a raw deal. I will not go into the details here of why this criticism is unfounded; our Web site, http://www.insmark.com, has several complete studies that show how very good an investment the charity is making in the typical plan, and how competitive commercial term rates can easily be used as a basis for the charity’s cost.

Last, in your concentration on the “aggressive marketing” of the charitable split-dollar concept, you miss perhaps the most important point of all: These plans are providing hundreds of millions of dollars to charities, in both long-term endowments and in current contributions — dollars that would simply not have been given to charities unless the plans also helped the clients of financial professionals with their own retirement and estate planning. Donative intent is present in these plans — they simply do not work without it — and in many cases we have found that the plans spark donors’ latent donative intent to the extent that they dramatically step up their current charitable giving and other activities.

Perhaps the most important personal statement that I can make is this: I am extremely proud of the work that my company and I have done for America’s charitable causes through the Charitable Legacy Plan.

Robert B. Ritter, Jr.
Chairman InsMark
San Ramon, Cal.