Data processing: financial – business practice – management – or co – Automated electrical financial or business practice or... – Insurance
Reexamination Certificate
1998-10-06
2002-10-29
Rimell, Sam (Department: 2166)
Data processing: financial, business practice, management, or co
Automated electrical financial or business practice or...
Insurance
C705S001100
Reexamination Certificate
active
06473737
ABSTRACT:
FIELD OF THE INVENTION
The present invention relates generally to pension plans, and more particularly to a system, method and apparatus for providing an executive compensation system
BACKGROUND OF THE INVENTION
Without limiting the scope of the present invention, this background of the invention is described in connection with executive compensation systems, which may include compensation paid to owners of privately held businesses for the sale of those businesses. The present invention, however, is not limited to compensation systems for executives, and is applicable to compensation systems for one or more individuals.
Executive compensation systems, such as pension plans, 401(k) plans, non-qualified deferred compensation agreements and stock option plans, can easily be combined to provide a retiring executive, officer or director with a “pension plan” having a value of two to three million dollars or more. The taxes on such a “pension plan” can be staggering, especially if the “pension plan” is to be paid in a “lump sum.”
Similarly, owners of privately held businesses often want or must sell their business when they retire. Although an owner may have various other sources of retirement income, the owner's main source of retirement income typically comes from the sale of the business. Such a sale may result in an unacceptably high tax bill. As a result, the owner will typically demand a higher price for the business to offset the taxes that must be paid.
SUMMARY OF THE INVENTION
The present invention provides an executive compensation system having a first entity, a money lender, and an insurer. The first entity receives a taxable sum of money from a second entity, which owes the taxable sum of money to a person. The first entity provides one or more periodic payments to the person until the person dies, wherein the one or more periodic payments determined from the taxable sum of money and the person's life expectancy. The money lender loans a non-taxable sum of money to the person and in return receives one or more periodic interest payments from the person. The non-taxable sum of money is determined from a fixed rate of interest and the one or more periodic interest payments that are substantially equivalent to the one or more periodic payments. The insurer provides a life insurance policy for the person's life such that the life insurance policy pays a death benefit substantially equivalent to the non-taxable sum of money.
In another embodiment, the executive compensation system provides an annuity provider, a money lender and an insurer. The annuity provider receives a taxable sum of money from a business, which owes the taxable sum of money to a person. The annuity provider then provides one or more periodic payments to the person until the person dies, wherein the one or more periodic payments are determined from the taxable sum of money and the person's life expectancy. The money lender loans a non-taxable sum of money to the person and in return, receives one or more periodic interest payments from the person. The non-taxable sum of money is determined from a fixed rate of interest and the one or more periodic interest payments that are substantially equivalent to the one or more periodic payments. The insurer provides a life insurance policy for the person's life having one or more insurance premiums that are paid by the business such that the life insurance policy pays a death benefit substantially equivalent to the non-taxable sum of money.
In another embodiment of the present invention, the executive compensation system provides a charitable remainder trust, a money lender and an insurer. The charitable remainder trust receive a taxable sum of money from a buyer, which owes the taxable sum of money to a person. The charitable remainder trust then provides one or more periodic payments to the person until the person dies, wherein the one or more periodic payments determined from the taxable sum of money and the person's life expectancy. The money lender loans a non-taxable sum of money to the person and in return, receives one or more periodic interest payments from the person, such that the non-taxable sum of money is determined from a fixed rate of interest and the one or more periodic interest payments that are substantially equivalent to the one or more periodic payments. The insurer provides a life insurance policy for the person's life such that the life insurance policy pays a death benefit substantially equivalent to the non-taxable sum of money.
The present invention also provides a method for providing an executive compensation system comprising the steps of determining one or more periodic payments from a taxable sum of money, which is owed to a person by a second entity, and the person's life expectancy. The non-taxable sum of money is then determined from a fixed rate of interest and one or more periodic interest payments that are substantially equivalent to the one or more periodic payments. Next, a life insurance policy is obtained for the person's life, the life insurance policy having a death benefit that is substantially equivalent to the non-taxable sum of money. Thereafter, the taxable sum of money is transferred from the second entity to a first entity, the non-taxable sum of money is transferred from a money lender to the person and the one or more periodic payments are periodically transferred from the first entity to the person and the one or more periodic interest payments are periodically transferred from the person to the money lender. The death benefit is finally used to substantially repay the money lender for the non-taxable sum of money after the person's death.
In addition, the present invention provides a computer program embodied on a computer-readable medium for defining an executive compensation system. The computer program comprises code segments for determining: (1) a projected net income payment from an investment; (2) a loan amount based on an interest rate and an interest payment such that the interest payment is equal to or less than the projected net income payment; (3) a premium for a life insurance policy such that the life insurance policy provides a death benefit equal to or greater than the loan amount; and (4) a projected income from investing the loan amount.
Other features and advantages of the present invention shall be apparent to those of ordinary skill in the art upon reference to the following detailed description taken in conjunction with the accompanying drawings.
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Pollan, Stephen M. and Levine, Mark, Die Broke, HarperBusiness, New York, 1997, pp 141-143.
Chalker Daniel J.
Gardere Wynne & Sewell LLP
Rimell Sam
Warren, Jr. Sanford E.
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