How Is Change Implemented with PPLI?

Change Comes Slowly to PPLI

 Private Placement Life Insurance (PPLI) gives wealthy international families a conservative structure to achieve enhanced privacy and a tax free environment for their assets. At first glance, it would not seem that PPLI would share something in common with Ralph Lauren, the well-known fashion designer, but read on, and you will see how they are connected.

PPLI structuring is basically using available laws and regulations to the best possible advantage for each unique family situation. Why not take a “straight and narrow” route and avoid issues with the tax authorities of all the countries involved in the structure?

Life insurance is well established in the laws and regulations of most countries in the world.  It is considered a benefit to society: 

“Life insurers are vital to an efficiently functioning modern economy and society and are a key contributor to long-term economic growth and improved living standards,” states a 2016 report by The Brattle Group, “The Social and Economic Contributions of the Life Insurance Industry.”

Because life insurance permeates the social fabric at all economic levels, the laws and regulations on life insurance tend to be more stable and less subject to political change. Later on we will give you an example of how a tax law change in the U.S. is playing out in a complex manner that will take many years to fully resolve.

What are a few key elements that show us why it is vital to use life insurance in structuring for wealthy international families?  Here are two significant ones:

Simplified Reporting

A compliant PPLI policy is an asset that can hold various investments, including multiple underlying traded or non-traded companies as well as private equity. The insurance company is legally seen as the owner of these investments, hence this simplifies the reporting requirements under most reporting regimes. CRS reporting is also simplified and limited, based on correct structuring at the inception of the process.

Asset Protection

 PPLI can offer privacy and, in some cases, significant protection from creditors. Assets held in a PPLI policy are held in a Separate Account and are protected from the assets of all other policyholders and the general account of the insurance Company.

Here is our example of how a recent tax law change is playing out in the U.S.

New Hampshire Fights Supreme Court

Sales-Tax Ruling

Retailers in five states without a sales tax face new burdens

 

New Hampshire is one of five states without a broad-based statewide sales tax, a status that had insulated retailers from a task familiar to businesses elsewhere. That cushion lasted until the U.S. Supreme Court’s June decision in South Dakota v. Wayfair, which lets states require retailers to collect sales taxes even if those businesses lack a physical presence in the state.

States with sales taxes are still figuring out how they’ll approach out-of-state retailers. New Hampshire, with a special legislative session scheduled for Wednesday, isn’t waiting to respond. Its reaction to the court’s decision will spur the next round of skirmishes over cross-border sales-tax collection.

States with sales taxes are working on their regulations to get out-of-state sellers registered in their systems and collecting the tax. In some cases, they need to wait for their legislative sessions for new or revised laws.

Does all this sound familiar?  Change the actors and subject matter in the play and you have the worldwide reactions to implementing FATCA, CRS, Registers of Beneficial Ownership and other mandates from governments and regulatory bodies around the world.

Although far from timeless, our firm’s PPLI structures that use life insurance as its core element have withstood many years of changes in transparency, tax legislation, and calls from government officials to end “aggressive tax planning.” Planning with life insurance could be seen as the eye of the hurricane–an area of calm in the midst of constant change. We achieve outstanding results without being aggressive.

We thank Ralph Lauren for his quote, and enjoy the challenge of securing exceptional results that have weathered many storms. As always, we welcome your comments and questions.

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

Michael Malloy, CLU TEP

 

 

 

 

 

 

 

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PPLI Hits the Mainstream with Bloomberg

EWP: A Giant Structuring Tool

Since we work with wealthy international families, we are expert in using Private Placement Life Insurance (PPLI) as a structuring tool. Our approach is called Expanded Worldwide Planning (EWP). A few weeks ago Bloomberg ran an article on PPLI, “How to invest in Hedge Funds and Pay No Taxes.” We offer quotes and a video about the article below.

First some basics on EWP, and how a properly structured policy can excellently serve the needs of wealthy international families.

  • All assets inside the PPLI policy receive tax deferral, not only investments, but business income too.
  • The assets pass tax-free to the beneficiaries named in the policy. In a properly structured policy one creates a tax-free environment for these assets. Assets can be located anywhere in the world.
  • Because life insurance is used, FATCA and CRS reporting is greatly simplified, and in some cases, is eliminated.
  • Families receive enhanced privacy, because the insurance company becomes the beneficial owner of the assets inside the PPLI policy.
  • The EWP structure provides excellent asset protection.
  • The EWP structure is low cost with fees averaging 1% of assets.
  • The EWP structure is fully compliant with the tax authorities of all tax jurisdictions.
  • Should an untimely death of the wealth creator occur, his family is protected with a tax-free death benefit.

More on Product vs. Structure

The Bloomberg article mentioned above speaks about PPLI as a product, which of course it is, but most importantly it is an EWP structuring tool. One quote from the article is of note:

“When I would talk about it years ago, people looked at you funny,” said Edward Gordon, founder of Preservation Capital Partners. Lawyers for the wealthy hadn’t heard of PPLIs and often dissuaded their clients from trying a product that “sounded too good to be true,” he said. Now, “it’s reaching somewhat of a tipping point.”

Unfortunately, the ignorance of PPLI’s planning possibilities even goes beyond lack of knowledge.  Many asset managers naively sell against insurance structuring, and do not realize that the unique tax advantages of PPLI will give the assets they manage a significant boost in performance.  This is especially true for long-term investments, and those intended for future generations.

Here are some other key quotes from the Bloomberg article by Heather Perlberg and Ben Steverman.

“This is a sexy product that people get excited about owning and tell their friends about,” said Aaron Hodari, a managing director at the advisory firm Schechter Wealth. “It’s an alternative investment that allows you to invest in hedge funds and defer or eliminate taxes.”

“Athletes, celebrities, and family offices are embracing private placement life insurance, or PPLI, as a way to preserve wealth for their heirs. It’s a strategy that’s perfectly legal and has existed for decades. While insurance funds are typically a way to protect assets from lawsuits, the main appeal of PPLIs is that they can help investors avoid taxes on capital gains, ordinary income and high-net-worth estates.”

Bloomberg’s Peggy Collins now offers us a short video about the Bloomberg article:

We invite you to explore with us the structuring possibilities of PPLI and EWP. As always, your comments and questions are indeed welcomed and appreciated.

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

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Expanded Worldwide Planning (EWP) in Pictures

PPLI + EWP = New Insights

As the saying goes, “A picture is worth a thousand words.” We have paired images with the main principles of Expanded Worldwide Planning (EWP) to hopefully give you some new insights on this planning tool for wealthy international families.  There are many possibilities for using Private Placement Life Insurance (PPLI) in connection with other entities like trusts and holding companies.

Planning with trust and foundations frequently offer only limited tax planning opportunities whereas EWP provides a tax shield. Adding a PPLI policy held by the correct entity in the proper jurisdiction creates a notable planning opportunity.

Privacy

EWP gives privacy and compliance with tax laws. It also enhances protection from data breach and strengthens family security. It allows for a tax compliant system that still respects basic rights of privacy. It addresses the concerns of law firms and international planners about some aspects of CRS related to their clients’ privacy. EWP assists with the privacy and welfare of families by protecting their financial records and keeping them in compliance with tax regulations.

EWP gives privacy and compliance with tax laws

Asset protection

Expanded Worldwide Planning  protects assets with segregated account legislation by using the benefits of life insurance. This structure uses asset protection laws in the jurisdictions of residence to shield these assets from creditors’ claims. A trust with its own asset protection provisions can still receive additional protection with PPLI.

Asset protection

Succession planning

EWP includes transfers of assets without forced heirship rules directly to beneficiaries using a controlled and orderly plan. This element provides a wealth holder a method to enact an estate plan according to his/her wishes without complying forced heirship rules in the home country. This plan must be coordinated with all the aspects of a properly structured PPLI policy together with other elements of a wealth owner’s financial and legal planning.

Succession planning

Tax shield

EWP adds tax deferral, income, estate tax benefits and dynasty tax planning opportunities. Assets held in a life insurance contract are considered tax-deferred in most jurisdictions throughout the world. Likewise, PPLI policies that are properly constructed shield the assets from all taxes. In most cases, upon the death of the insured, benefits are paid as a tax free death benefit.

Tax shield

Compliance simplifier

EWP adds ease of reporting to tax authorities and administration of assets, commercial substance to PPLI structures. In addition, the insurance company is considered the beneficial owner of the assets. This approach greatly simplifies reporting obligations to tax authorizes because assets in the policy are held in segregated accounts and can be spread over multiple jurisdictions worldwide.

Compliance simplifier

Trust substitute

Expanded Worldwide Planning creates viable structure under specific insurance regulations for civil law jurisdictions. It also creates a new role for commercial trust companies. In most civil law jurisdictions, trusts are poorly acknowledged and trust law is not well developed. As a result, companies with foreign trusts in these civil law jurisdictions, face obstacles.

We appreciate your comments, suggestions, and questions. Please provide us with a brief fact pattern and we can tell you if our firm’s tools are right tool for you.

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

 

 

 

 

 

PPLI Protects U.S. Situs Assets

Estate Tax Planning for Non-U.S. Persons

Winston Churchill’s quote is apt for many who plan for wealthy international clients. Perhaps you have had this happen to you?  You receive a call from a close relative of a client who has just purchased an apartment in their own name. This relative spends considerable time in New York City. You know that the family is now exposed to U.S. estate tax, and you have to figure out how to extricate them from this issue.

Our firm focuses on the adroit and compliant concept of Expanded Worldwide Planning (EWP).  At the heart of EWP is a properly structured Private Placement Life Insurance (PPLI) policy that allows the insurance company of the assets inside the policy to become the beneficial owner of these assets.  In many cases this gives the structure additional privacy protection as well as simplicity.

Life insurance, and this includes PPLI, is a well-recognized and well-established financial planning tool. If the overall structure is properly conceived, you have a tax efficient and compliant structure that gives tax-deferred growth to the assets inside the PPLI policy.  At the death of the insured life in the policy, a tax-free death benefit transfers the assets to, in most cases, a trust that conforms to the family’s estate planning aims.

Prior to the passage of the Trump Administration’s new tax bill, many had speculated on two key possible impacts for non-U.S. persons—the elimination of the estate tax exemption disparity between non-U.S. and U.S. persons, and the elimination of the estate tax itself, which could have eliminated a long-standing reason to use offshore structures.

On December 22, 2017, Public Law 115‑97 (“Tax Cuts and Jobs Act”) was enacted amending the estate tax for U.S. persons only. Sections 2010 and 2001, both of which apply to estates of citizens or residents, did not alter taxes imposed on the estates of nonresidents who are not U.S. citizens who hold U.S. situs assets.

Under Section 2010, the basic exclusion amount for estates of resident or citizen decedents dying after December 31, 2017, and before January 1, 2026, is increased from $5 million to $10 million. But I.R.C. Sections 2101-2108 which pertain to the “Estates of Non-Residents Not Citizens,” were not amended. Accordingly, the tax imposed on the transfer of the taxable estate of decedent nonresidents who are not U.S. citizens remains subject to a minimum basic exclusion of only $60,000.

Given the continuing taxation upon death of U.S. situs assets for those private wealth clients, care is urged in planning how those assets are held. The many and varied planning possibilities inherent in EWP can be achieved through using the correct PPLI structure.  The protection of U.S. situs assets of non-U.S. persons is just one of the many uses of EWP.

If you give us a brief fact pattern of your situation, we can let you know if EWP and PPLI are the right fit for you.  We look forward to your questions and comments.

 

 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