Part Two

Q: Who exactly benefits from a VEBA?

The people benefitting from a VEBA are those wishing to:

Reduce or eliminate income and estate taxes

Increase the size of their estate

Reduce or eliminate capital gains on the sale of a business, real estate, or stock

Establish fully tax deductible benefit packages that legally weigh plan benefits in favor of owners and key employees by 80-90%

Protect assets from both lawsuits and creditor attacks through the use of the Employees Retirement Income and Securities Act (ERISA)

Preventing the loss of up to 80% on their retirement money (IRAs or other qualified plans) when they die

Buy tax-deductible insurance

Establish a tax efficient business succession plan

Reduce or eliminate retained earnings problems

Have the flexibility in selecting the amount of annual contribution to a plan

Q: How do VEBA plans work?

VEBA plans work this way:

1. The employer establishes a single employer VEBA.

2. The employer then begins making annual contributions to the plan's trust to buy benefits.

3. The employer takes an income tax deduction each year equal to the current and post-retirement benefits paid off over the working life of the employee.

4. All of the trust assets are held in the VEBA trust. There are no segregated employer accounts. Employer contributions create the trust assets, which the trust may use to provide benefits, even after a sponsoring employer is unable make contributions.

5. The trust accumulates funds and purchases insurance coverage (i.e., life, health, and disability insurance) on each participating employee. Trust cash accumulations and/or insurance benefits are then used to meet the trust's obligations to the participants and their beneficiaries.

6. The employer selects the level of benefit it gives employees by determining the level of "salary multiple" contributed for each employee.

7. The trustee, such as a large bank, is an independent third party holding all trust assets as well as providing regular reports to the VEBA Administrator.

If you would like more information regarding asset protection, trusts, family limited partnerships or the subject of this article please call or email our office.