WHERE EAGLES DARE-INTRODUCING MALTA SPLIT DOLLAR


Today marks the one-year anniversary of my Dad's (Willy Wolfgang Nowotny) passing on November, 17, 2019. My instinct is to be sad, but I choose to remain happy remembering his life with fondness by focusing on where he started and where he ended up.


My Dad was from a small town in the former East Germany about a mile from the Polish and Czech borders on the edge of the former Sudetenland. He came to the U.S. in 1952 as an eighteen-year-old as a refugee sponsored by a former Army Chaplain. My grandmother was widowed with two small children after the war. After watching the guards at the border for two weeks, he made his escape to West Germany and freedom swimming across a river. Of course, he forgot important identification papers and had to retrace his steps and do it a second time.


He was drafted into Uncle Sam's Army in 1953. This was not "Easy Street" right after World War II with his thick German accent and World War II veteran NC0 as his platoon sergeant. He met my mother through her half-brother who played in the same immigrant soccer league before the rest of America knew what soccer was. After the Army, he worked for the federal government and applied for a job in the Panama Canal Zone where he had a fine career as a civil servant. By my age, he was comfortably retired and traveling the World. He managed to visit every continent. While he never liked to talk about his experiences growing up during the War or East Germany after the War, he made up for it later in life become a world class storyteller for the benefit of his grandchildren.


He was another American Dream success story which is something only made in America, never to be stolen by the CCP or USSR or replicated by anyone else. Like many immigrants, he had the courage to risk his life and leave behind everything he knew and loved, for the potential of a better life. This is the life that only eagles dare!


My soccer-playing German father loved American baseball. He was fond of saying when he critiqued my performance and that of my older brother Willy by saying, “I never played the game, but….” The same propensity for giving fatherly advice extended to tax playing by saying “I have no idea what you are talking about but….” This one is for you Pops!


This article addresses the combination of a Malta Pension Plan and the Loan Method Split Dollar Arrangement. Some readers might say, what do these two strategies have to do with each other? Malta Split Dollar is the tax combination of a tax deferral strategy that migrates deferred dollars into tax-free dollars through the Loan Method of Split Dollar using the Leveraged Split dollar Rollout on the backend to terminate the arrangement at a significant discount. Watch, listen and learn!


The Malta Pension Plan


I have written extensively on Malta Pension Plans ("Plan"). The Plan has many similarities to a Roth IRA except that the Plan has no contribution limits and is not restricted to cash contributions. A high net worth taxpayer can contribute appreciated assets to the Plan without triggering taxation on the contribution. The investment advisor within the Plan can sell appreciated capital assets within the Plan without taxation. The investment earnings within the Plan can be reinvested within the Plan and accrue on a tax-deferred basis.


The Plan offers the participant various methods of distributing tax-deferred benefits on a mostly tax-free basis like a Roth IRA. The Plan offers a participant who is at least age 50 to distribute up to 30 percent of the account value on a tax-free basis. The Plan offers the participant the ability to take additional lump sum distributions up to 50 percent of the account value, three years after the lump sum distribution and every year thereafter. The Plan may always make taxable distributions to the participant.


The inevitable tax problem of a deferred compensation asset is that it is ultimately subject to income and estate taxation where applicable. In the Plan, appreciated assets at the time of the participant's death are subject to a one-time mark-to-market tax under IRC Sec 684 at the participant’s death. The tax basis of Plan assets is increased by the amount of taxes paid under IRC Sec 684. The Plan death benefit to beneficiaries receives tax-free treatment. A participant subject to estate taxation also has this tax to deal with.