Syntactical Trusts

Syntactical Trusts: A Comprehensive Guide
Syntactical Trusts represent a significant evolution in legal theory, offering a flexible and hierarchical framework that is particularly beneficial for Sovereign entities. This article delves into the concept of Syntactical Trusts, their application in Bank-Owned Life Insurance (BOLI) products, and the operational mechanics of BOLI within these trusts.

Understanding Syntactical Trusts
Syntactical Trusts have emerged as a pivotal concept in legal theory, providing a mechanism for trustees to establish a foundational framework, or "strawman", that allows for the expansion of trusts in various directions. This is especially advantageous for Sovereign entities, adhering to the principle that no laws supersede sovereign laws. In this context, sovereign entities interact on an equal footing, with no hierarchy imposed.

Types of BOLI Products for Syntactical Trusts
Bank-Owned Life Insurance (BOLI) products are integral to the financial strategies of Syntactical Trusts, offering three primary types:

General Account: The traditional and most prevalent form, where investments become part of the insurance carrier's general account, primarily invested in real estate and bonds. It features a current crediting rate and a guaranteed minimum crediting rate.

Separate Account: This type involves segregating investments into bank-eligible assets managed by renowned fund managers, offering detailed asset reporting. The crediting rate is determined by the carrier without a guaranteed minimum, but a stable value insurance rider can be added for downside protection.

Hybrid Account: Combining the benefits of the General and Separate accounts, this approach offers both a current and guaranteed crediting rate along with the transparency of asset management.

How Does BOLI Work in Syntactical Trusts?
The operation of BOLI within Syntactical Trusts involves purchasing life insurance on key employees or directors, with the trust as both owner and beneficiary. This strategic investment yields tax-adjusted cash value growth, surpassing the returns of alternative investments and offsetting employee benefit program costs. BOLI products, typically single-premium, are immediately accretive to earnings, offering a favorable spread over the cost of funds used for the purchase.

Accounting and Compliance for BOLI
The accounting practices for BOLI are dictated by FASB Technical Bulletin No. 85-4, classifying BOLI as an "other asset" on the balance sheet. The increase in cash surrender value or contract value, along with the final net insurance proceeds at maturity, is recorded as "other income". Properly implemented and administered, BOLI serves as a long-term, highly-rated investment with significant tax advantages over other permissible investments for banks.

Conclusion
Syntactical Trusts and their integration with BOLI products offer a sophisticated and advantageous framework for managing sovereign and financial entities' assets. By leveraging the unique features of General, Separate, and Hybrid BOLI accounts, Syntactical Trusts can achieve superior financial performance and compliance efficiency. This guide provides a foundational understanding of Syntactical Trusts and BOLI, encouraging further exploration into this innovative legal and financial mechanism.