Addendum to White Paper on Expanded Worldwide Planning

Additional comments on EWP

Structuring in Puerto Rico—the best of “the new Switzerland” Expanded Worldwide Planning (EWP)

In case you didn’t, please read the “Expanded Worldwide Planning (EWP)” blog post.

Top international tax planners have been quick to realize the implications of our last white
paper, “Structuring in Puerto Rico—the best of “the new Switzerland.” Indeed, one advisor
coined the phrase “Expanded Worldwide Planning” to describe the new paradigm. We have
espoused this phrase as the title of our short Addendum to our white paper and will be
clarifying some of these new possibilities for your planning toolkit. With EWP, the trust or
entity can be domiciled anywhere the client wishes it to be and so can the assets be located
anywhere in the world. Over the last few years, many of the international families we serve
have been described as Global Citizens. In parallel to that, EWP can be viewed as Global
Planning.

If one accepts the tenets outlined in, “Structuring in Puerto Rico—the best of the new
Switzerland,” that is backed up with a very positively worded legal opinion letter by a major
international law firm, it becomes obvious that the Puerto Rican Private Placement Life
Insurance policy functions merely as a second trust to secure the advantages of Puerto Rico’s  jurisdictional position. These advantages have been strengthened by the recent elections in the US, as well as the voices that have been raised about legal and data breach issues inherent in CRS.1

Ironically, under the umbrella of an EWP structure, planning possibilities are expanded rather than diminished as a result of FATCA and CRS. EWP allows for a tax compliant system that still respects basic rights of privacy. It assuages the quite significant objections many major law firms and international planners rightfully raise against certain aspects of the CRS.2

They are not seeking to hide client assets from tax authorities but do intend to protect their
clients’ privacy, which EWP allows them to do.

With the massive amounts of data being exchanged under CRS about to commence, the risk is high for the right of attorney client privilege to be pierced by groups of journalists working in consort in the name of tax transparency.

This has already become apparent in past experiences such as the Panama Papers. It will take years for all the implications of CRS to be worked out, if indeed it lasts that long.
Why not embrace a structure that bypasses the confusion and discord that will ensue in this process? Advanced Financial Solutions seeks to secure its clients in a tax-advantaged and privacy-advantaged environment. We are not looking to hide client assets and work only with those who have undergone a most thorough KYC and AML process. We invite you to explore EWP with us, and welcome your questions and inquiries.

Download the full PDF with endnotes: EWP addendum final (pdf)

 

by Michael Malloy, CLU TEP, @ Advanced Financial Solutions, Inc

 

 

 

Expanded Worldwide Planning (EWP)

The new paradigm for international structuring

Give Your Clients Greater Control Within a Simpler Structure Using Expanded Worldwide Planning (EWP)

Have you heard of Expanded Worldwide Planning (EWP)?

You have heard of FATCA, CRS, and BEPS – well, within these confines, why not embrace greater freedom: EWP allows you to simplify your existing structures and minimize your reporting obligations under FATCA and CRS. The total fee is approximately 1% of the client’s assets inside the structure.

At Advanced Financial Solutions, we are finding that clients are requesting simpler structures that offer full transparency. This white paper introduces you to one that gives advisors multiple creative opportunities to achieve this aim.

In its core, an EWP is a properly structured Private Placement Life Insurance (PPLI) policy
in a jurisdiction appropriate to the client’s other planning needs. The other elements in the
EWP structure differ depending on the individual client situation. Advisors must factor in the client’s nationality, country of origin, country(s) of domicile, the insurance regulations of all the jurisdictions involved, the tax reporting obligations of all the entities in the structure, and the planning aims of the client. Our chart below outlines some of the possibilities for planning using EWP.

Under the segregated account legislation of the PPLI policy jurisdictions listed in our chart,
the insurance company becomes the beneficial owner of the assets inside the policy.

The reporting obligations under FATCA and CRS differ for each of the policy jurisdictions on our  chart. The goal of EWP is to give clients full compliance with all existing tax regulations while still retaining the utmost possible privacy for them.

The old offshore world is in flux and in the process of redefining itself. This creates new
possibilities for planning that did not previously exist. Whatever the nationality of your client and their very particular needs, we can supply you with compliant solutions. Each of the PPLI policy jurisdictions listed in our chart can provide vastly enhanced planning possibilities in  this open architecture environment. The trust, or other policy holder entity, can be domiciled  anywhere in the world, and the assets inside the policy can also be located anywhere in the world. Please reflect on these new possibilities. We welcome your inquiries, questions, and  comments.

Download full PDF document with graphics and notes

 

by Michael Malloy, CLU TEP, @ Advanced Financial Solutions, Inc

 

 

 

Trust Substitute by Michael Malloy

PPLI Offers the Following Advantages

  • Creates viable structure for civil law jurisdictions
  • Creates new role for commercial trust company
  • Creates structure viable under specific insurance regulations

 

In most civil law jurisdictions, trusts are poorly acknowledged and trust law is not well developed 1. This can create obstacles for those domiciled in these civil law jurisdictions that have created foreign trusts. However, in certain circumstances, a PPLI structure can circumvent these problems and achieve the planning aims one would more commonly be able to fulfill with a trust in a common law jurisdiction.2

Indeed, life insurance is generally recognized in almost all jurisdictions, and a PPLI structure can actually fulfill the functions of both a trust and life insurance.

In situations where it is advantageous for the insured person under the policy to also be the owner, a commercial trust company can still act as the administrator of the assets inside the policy.

The specific insurance regulations of the domicile of both the policy owner, possibly a trust, and the insured person(s) under the policy, must be thoroughly understood for a properly executed plan using the precepts of Expanded Worldwide Planning (EWP).

 

Endnotes

  1. “ Wikipedia Trust in civil law jurisdictions,” https://en.wikipedia.org/wiki/Trust_law_in_civil_law_jurisdictions
  2. “Wikipedia Private placement life insurance,” https://en.wikipedia.org/wiki/Private_placement_life_insurance see section, PPLI outside the USA.
  3. supra note 2, see section , PPLI outside the USA, at References and Additional Resources, note 5.

 

by Michael Malloy, CLU TEP, @ Advanced Financial Solutions, Inc

 

 

 

Succession Planning

     PPLI Offers the Following Advantages  

  • Transfers assets without forced heirship rules
  • Transfers assets directly to beneficiaries
  • Transfers assets using a controlled and orderly plan

 

Many countries, primarily in civil-law jurisdictions, require forced distribution of assets at death according to strict laws and regulations.  This usually takes the form of percentage shares of assets that will be distributed to spouses, children, and other close relations of the deceased.1  A PPLI policy purchased outside the home country of the owner or policy holder is one method to mitigate these forced heirship rules.2

The PPLI policy is a contract between the owner of the policy and the insurance company to pay the beneficiary of the policy the death benefit upon the death of the insured under the contract.3 A typical beneficiary provision of a life insurance policy states:  “unless an alternate payment plan, acceptable to us, is chosen, the proceeds payable at the insured’s death will be paid in a lump sum to the primary Beneficiary. If the primary Beneficiary dies before the insured, the proceeds will be paid to the contingent Beneficiary. If no Beneficiary survives the insured, the proceeds will be paid to your estate.”  Since a typical PPLI policy is executed outside the home country of the policy owner, the forced heirship laws do not apply, as the policy will be governed by the laws where the insurance company is domiciled.4

This element of Expanded Worldwide Planning (EWP) provides a wealth holder an excellent method to enact an estate plan that conforms to his/her own wishes, and not be dictated by the forced heirship rules of his/her home country.  To be successful this needs to be well-coordinated with all the aspects of a properly structure PPLI policy, as well as all the other elements of a wealth owner’s financial and legal planning.

Endnotes

  1. “Wikipedia Forced heirship,” https://en.wikipedia.org/wiki/Forced_heirship
  2. Whelehan, “International Life Insurance: An Overview,” in International Life Insurance, edited by David D. Whelehan, JD (Chancellor Publications Limited, 2002) at 1.
  3. Christensen, Burke and Graves, Edward, McGill’s Legal Aspects of Life Insurance, (The American College Press 2008), at 1.3.
  4. supra note 2.

 

by Michael Malloy, CLU TEP, @ Advanced Financial Solutions, Inc

 

 

Compliance Simplifier by Michael Malloy

PPLI Offers the Following Advantages

  •       Adds ease of reporting to tax authorities
  •       Adds straightforward administration of assets
  •       Adds commercial substance to structures

Compliance Simplifier

The beneficial owner of the assets in a properly structured PPLI policy is the insurance company.1 This greatly simplifies any reporting obligations to tax authorizes, because the assets inside the policy are held in segregated accounts, and frequently spread out over multiple jurisdictions worldwide.  The PPLI insurance company becomes the administrator of the assets and their beneficial owner. Because they are held in segregated accounts, they are not part of the insurance company’s balance sheet and are often placed in the hands of a custodian bank.2

Most PPLI companies will accept any qualified institution to act as custodian, and any qualified asset manager to direct the investments in the segregated accounts.  This relationship between the owner of the policy, the insurance company, and the segregated accounts is codified in the laws of the various jurisdictions where PPLI insurance companies are located, and therefore lends viable commercial substance to such a structure.3

 

Endnotes

  1. “Wikipedia Private placement life insurance,” https://en.wikipedia.org/wiki/Private_placement_life_insurance see also, “The New Age of Global Tax Transparency and Registers of Beneficial Owners. The Compliant Solution,” Taxlinked.net https://taxlinked.net/getattachment/m/FT-Alternative-Solutions/Publications/The-New-Age-of-Global-Tax-Transparency-and-Registe/The-New-Age-of-Global-Tax-Transparency-and-Registers-of-Beneficial-Owners-(3).pdf
  2. Bortnick, “Tax Management: Building Wealth, Reducing Taxes,” in The PPLI Solution, Delivering Wealth Accumulation, Tax Efficiency, and Asset Protection Through Private Placement Life Insurance (The PPLI Solution) at 33 (Bloomberg Press, 2005).
  3. “Wikipedia Private placement life insurance,” https://en.wikipedia.org/wiki/Private_placement_life_insurance

 

by Michael Malloy, CLU TEP, @ Advanced Financial Solutions, Inc

 

 

Tax Shield by Michael Malloy

PPLI Offers the Following Advantages

  • Adds tax deferral
  • Adds income, and estate tax benefits
  • Adds dynasty tax planning opportunities

 

The assets inside a life insurance contract offer the advantage of growing tax-deferred in most jurisdictions throughout the world.1 This applies to PPLI policies as well, and in a properly constructed policy shields the assets from all taxes. In most cases, upon the death of the insured(s) under a contract of insurance, the death benefit is paid out free of tax.2

Whereas planning with just trusts and foundations offers only limited tax planning opportunities, Expanded Worldwide Planning (EWP) offers a powerful Tax Shield. Adding a PPLI policy held by the correct entity in the proper jurisdiction creates an extraordinary dynasty planning opportunity.3

Endnotes

  1. Bortnick, “Tax Management: Building Wealth, Reducing Taxes,” in The PPLI Solution, Delivering Wealth Accumulation, Tax Efficiency, and Asset Protection Through Private Placement Life Insurance (The PPLI Solution) at 31 (Bloomberg Press, 2005).
  2. supra note 1.
  3. “Powerful Private Placement Life Insurance Strategies With Trusts,” Insurancenewsnet.com (March 30, 2016) http://insurancenewsnet.com/oarticle/powerful-private-placement-life-insurance-strategies-with-trusts

 

by Michael Malloy, CLU TEP, @ Advanced Financial Solutions, Inc

 

 

 

Asset Protection

PPLI Offers the Following Advantages

 

  • Protects assets with segregated account legislation
  • Protects assets from claims of creditors
  • Protects assets using the benefits of life insurance

 

The assets inside a PPLI policy are protected from creditors of the insurance company because they are segregated into separate accounts.  These separate accounts are not part of the general assets of the insurance company.1 The assets are protected from their own creditors, because of the asset protection laws in the jurisdictions where the PPLI companies are located.2 For example, the Bermuda Life Insurance Act of 1978, § 26(1), provides an unlimited exemption to the insured of both cash value and death benefit.   Further protection can be offered with the policy being owned by a trust that has its own asset protection provisions.

A PPLI policy actually offers three layers of asset protection:  the fact that they are held in segregated accounts; laws that exempt life insurance from the claims of creditors; and the asset protection laws in the jurisdictions where the PPLI insurance companies are located.

In addition, the PPLI policy inherently offers considerable tax benefits as well as asset protection. This would counter any argument that the transaction was a mere so-called fraudulent transfer to thwart creditors.3

 

Endnotes

  1. Lawson, “An Introduction to PPLI,” in The PPLI Solution, Delivering Wealth Accumulation, Tax Efficiency, and Asset Protection Through Private Placement Life Insurance (The PPLI Solution) at 5 (Bloomberg Press, 2005).
  2. Williams, “Jurisdiction—Home or Away?” in The PPLI Solution, supra note 1 at 285.
  3. Rothschild and Rubin, “Asset Protection: Riches Out of Reach,” in The PPLI Solution, supra note 1 at 50.

 

by Michael Malloy, CLU TEP, @ Advanced Financial Solutions, Inc

 

 

 

PPLI in Puerto Rico

A unique jurisdiction for enhanced privacy

With the increased pressure on privacy issues in international tax planning, advisors now frequently ask me to assist them with clients who wish to protect their privacy, but also wish to be compliant with The Common Reporting Standard (CRS), and the Financial Foreign Account Tax Compliance Act (FATCA)
.
Our firm now has such a structure which involves structuring Private Placement Life Insurance (PPLI) issued in Puerto Rico.

At  Advanced Financial Solutions Inc., we are now resolved to use this structure for clients who have a legitimate need for privacy while in all other respects are compliant in relation to FATCA and CRS, clients that would pass Anti money laundering (AML), Know your customer (KYC) and other forms of due diligence that are necessary to corroborate this fact.

This white paper is an attempt to give the basic elements of this structure, and why our firm thinks it is a useful tool in preserving a legitimate right to privacy. In Article 12 of The United Nations’ Universal Declaration of Human Ri ghts it states:

“No one shall besubjected to arbitrary interference with his privacy, family, home or correspondence, nor
to attacks upon his honour and reputation. Everyone has the right to the protection of
the law against such interference or attacks.”

Why Puerto Rico?

The Commonwealth of Puerto Rico is a territory of the United States. Under FATCA the Intergovernmental Agreements (IGA’s) definition of the United States excludes the territories. Therefore, US territories do not reciprocate the Automatic Exchange of  Information (AEI).

“Territory Financial Institutions” in the FACTA regulations also have a special status which exempts them from reporting.
The fact that Puerto Rico is statutorily excluded from existing and future IGAs is significant. This fact gives Puerto Rico a very marked advantage for structuring over no state tax jurisdictions in the US like Delaware, North Dakota, and Nevada.

Download full PDF document

 

by Michael Malloy, CLU TEP, @ Advanced Financial Solutions, Inc

 

 

 

Privacy with Expanded Worldwide Planning

 PPLI Offers the Following Advantages

  • Achieves privacy as well as compliance with tax authorities
  • Achieves protection from data breaches
  • Achieves increased family security

Life insurance is recognized worldwide as a simple and straightforward structure to transfer family wealth.  Private placement life insurance, (PPLI), is a bespoke variety that combines institutional pricing with assets in separately managed accounts.1 In certain jurisdictions, a properly structured PPLI policy can provide both compliance with tax authorities and privacy of the assets inside the policy.2

EWP allows for a tax compliant system that still respects basic rights of privacy . In Article 12 of The United Nations’ Universal Declaration of Human Rights, it states “No one shall be subjected to arbitrary interference with his privacy, family, home or correspondence, nor to attacks upon his honor and reputation. Everyone has the right to the protection of the law against such interference or attacks.”3

EWP assuages the quite significant objections many major law firms and international planners rightfully raise against certain aspects of the Common Reporting Standard (CRS).4  They are not seeking to hide client assets from tax authorities but do intend to protect their clients’ privacy, which is exactly what an EWP allows them to do.

With the Automatic Exchange of Information (AEol) under CRS beginning in 2017, serious questions are being raised by government bodies and stakeholders on the security of their clients’ financial information and violations of an individual’s fundamental right to privacy.5

In a number of countries throughout the world, kidnapping and extortion of wealthy families is a daily reality, and the planned AEol and proposed registers of beneficial owners can only be expected to increase this criminal activity.6  EWP greatly assists in protecting the privacy and well being of wealthy families by keeping the financial affairs of these families both private and in compliance with tax authorities.

 

Endnotes

  1. Internal Revenue Code Section 7702; See Kirk Loury, The PPLI Solution: Delivering Wealth Accumulation, Tax Efficiency, and Asset Protection Through Private Placement Life Insurance (2005); see also Lynnley Browning, “Tax-Free Life Insurance: An Untapped Investment for the Affluent,” The New York Times (Feb. 9, 2011).
  2. Wikipedia, Private Placement Life Insurance, https://en.wikipedia.org/wiki/Private_placement_life_insurance
  3. Also of interest is Section I, Article 8 of the EU Convention of Human rights: “1. Everyone has the right to respect for his private and family life, his home and his correspondence. 2. There shall be no interference by a public authority with the exercise of this right except such as is in accordance with the law and is necessary in a democratic society in the interests of national security, public safety or the economic wellbeing of the country, for the prevention of disorder or crime, for the protection of health or morals, or for the protection of the rights and freedoms of others.”
  4. Andrew Knight and Anthony Markham, “Is there room for privacy planning in a tax–transparent world?” International Investment, 23 November 2016 http://www.internationalinvestment.net/opinion/room-privacy-planning-tax-transparent-world-maitland/ see also Caroline Garnham, “HNWIs, FATCA & CRS: Is Privacy Dead?” Private Client Hub,” 22 July 2016, http://theprivateclienthub.com/fatca-crs-privacy-dead/
  5. Filippo Noseda, “CRS and Beneficial Ownership,” Martindale.com, June 9, 2026, https://www.martindale.com/taxation-law/article_Withers-Bergman-LLP_2229788.htm
  6. Amy Bell, “A Guide To Kidnap & Ransom Insurance Coverage,” Investopedia, June 29, 2015, http://www.investopedia.com/articles/personal-finance/062915/guide-kidnap-ransom-insurance-coverage.asp see also United States Department of State, Bureau of Diplomatic Security, “OSDC Global Kidnapping Assessment, Oct. 31, 2013 http://purchasing.tamucc.edu/assets/Travel%20Forms/OSAC%20Kidnapping%20Report.pdf

 

by Michael Malloy, CLU TEP, @ Advanced Financial Solutions, Inc