PPLI Changes an Asset’s Location

Moving Mount Everest

One goal of Private Placement Life Insurance (#PPLI) is to change an asset’s location. Can PPLI move Mount Everest? Not literally, but it does an excellent job of moving the assets of wealthy international families. Moving these assets where? Into a PPLI policy that gives these assets tax-deferral, asset protection, and passes them to beneficiaries as a tax-free death benefit.

We share with you Part II of Our Journey Together video that introduces PPLI and presents the six principles of Expanded Worldwide Planning (EWP): privacy, asset protection, succession planning, tax planning, compliance simplifier, and trust substitute.

Depending on the aims of the PPLI structuring, different sets of laws must be adhered to. For families that have a connection to the U.S., the IRS rules related to diversification and investor control must be followed. For clients with no connection to the U.S., these rules do not apply, and we must look to the country of the families’ tax domicile and the domicile of the insurance company for guidance.

This allows, in many cases, for PPLI structuring options not available to those families with a connection to the U.S. We have for you below the provisions of Barbados law that pertain to variable insurance. As you can read, they are simple, straightforward, and have few restrictions as to the assets that can be placed in a PPLI policy.

Many of our PPLI policies are written through companies domiciled in Barbados. Gregory J. Dean and Michael A. Heimos wrote a chapter in International Life Insurance, edited by David D. Whelehan, entitled, “A Jurisdictional Survey of the Asset Protection Merits of International Life Insurance and Annuities.” We quote from the section on Barbados.

“Barbados has sophisticated insurance laws rivaling any in the world, and a mature insurance industry, governed by the Insurance Act, 1996 (referred to in this section as the “Act”).  There are detailed provisions addressing generally defined long term business, group life, “industrial life insurance,” etc. The entirely of Barbadian insurance law is present in public legislation.

On August 17, 2001 the Governor-General of Barbados assented to several pieces of legislation that amend Barbados’ laws governing key aspects of banking, insurance and investment in the island. They are: the Companies (Amendment) Act, 2001-30; the International Business (Miscellaneous Provisions) Act, 2001-29; the Insurance (Amendment) Act, 2001-25; and the Exempt Insurance (Amendment) Act, 2001-27.

The acts allow for structures that are often seen as beneficial, if not necessary, for institutions in the offshore mutual funds, banking and trusts, captive insurance and commercial insurance industries to operate, in Barbados and elsewhere. As pointed out below, there also are aspects of the amendments regarding insurance that apply to the interests of local citizens and residents as well. The new acts are, largely, quite praiseworthy.”

Movable assets can be legally contested, especially in matrimonial disputes. We give you an article later on that is focused on just such a dispute.

Here is the section on Variable Insurance Business of the Barbados insurance code.

CHAPTER 310 INSURANCE

An Act to revise the law regulating the carrying on of insurance business in Barbados in order to strengthen the protection given to policyholders; to increase the capital and solvency requirements of insurance companies; to expand the existing regulatory framework to include the regulating of all insurance intermediaries; and to give effect to matters related thereto.

 

PROVISIONS RELATING TO VARIABLE INSURANCE BUSINESS

(5) The Supervisor may attach such further conditions to the issue of approval under subsection (1) as are relevant to the nature and class of the variable insurance business that the insurer intends to carry on including

(a) requiring the insurer to disclose to any applicant for a policy any one or more of the following:

(i) a statement of the investment policy of any separate account maintained in respect of such variable insurance policy including a description of the investment objectives intended for the separate account and the principal types of investments intended to be made, and any restrictions or limitations on the manner in which the operations of the separate account are intended to be conducted;

(ii) any restrictions or limitations on the manner in which the operations of such variable insurance policy are intended to be conducted;

(iii) a statement of the charges and expenses in respect of such variable insurance policy;

(iv) a summary of the method to be used in valuing assets in respect of which benefits under such variable insurance policy are to be determined; and

(v) illustrations of benefits payable under the variable insurance contract;

(b) requiring that any material contract between an insurer and suppliers of consulting, investment, administrative, sales, marketing, custodial or other services with respect to variable life insurance operations shall be in writing and provide that the supplier of such services shall furnish the Supervisor with any information or reports in connection with the services which the Supervisor may request in order to ascertain whether the variable life insurance operations of the insurer are being conducted in a manner consistent with this Act, and any other applicable law or regulation;

(c) requiring the insurer to furnish, in such manner and at such times or intervals as may be prescribed, such information relating to the value of benefits under the policies as may be prescribed, whether by sending notices to the policy-holders or depositing statements with the Supervisor;

(d) requiring that the variable insurance policy be in a specific form or contain such mandatory provisions as may be prescribed in any regulations;

(e) requiring that the insurer maintain reserves in addition to any reserves which the insurer is required to maintain under this Act;

(f) restricting the descriptions of property or indices of value of property by reference to which benefits under the policy will be determined in accordance with the regulations prescribed for such purpose; or

(g) regulating the manner in which and frequency with which property of any description is to be valued, for the purpose of determining the benefits, and the times at which reference is to be made for that purpose to any index of value of property in accordance with the regulations prescribed for such purpose.”

The disputed matrimonial asset that we mentioned earlier is a yacht, Dubai Court Overrules English Possession Order for Superyacht, and comes to us from the Society of Trust & Estate Practitioners (STEP) Industry News publication.

“Tatiana Akhmedova’s English court order against her Russian ex-husband Farkhad Akhmedov, vesting her with possession of his GBP350 million yacht, has been rejected by a Shari’a court in Dubai, where the vessel is currently detained.

The yacht, the MV Luna, is part of the GBP453 million financial remedy awarded granted to Mrs Akhmedova on their divorce in 2015. Ever since, her former husband, an oil tycoon, has been trying to put his assets beyond her reach. According to her lawyers, Withers, he hid assets in a Bermuda trust with the intention of evading his legal obligations to his wife, and launched a counter-claim that they had already divorced in Russia. This claim was only recently dismissed in a Russian court.

In December 2017, Haddon-Cave J in the England and Wales High Court set aside Mr Akhmedov’s dispositions of assets and money into the trust, in an unusual example of a court judgment that pierced the corporate veil. His bank accounts and other assets were frozen under worldwide freezing orders obtained in England, Liechtenstein and the Isle of Man. Haddon-Cave ordered him, and a Liechtenstein Anstalt that he controlled, to vest the yacht in his wife’s name to be sold on her behalf (Akhmedova v Akhmedov, 2018 EWFC 23 Fam).

By this time, Mr Akhmedova had sailed the Luna from its usual home in Turkey to Dubai, hoping to find some recourse through the Dubai legal system. Mrs Akhmedova thus applied to the Dubai International Finance Centre (DIFC) court for a freezing order against both Mr Akhmedov and the Liechtenstein Anstalt, in the hope that the DIFC would issue a court order recognised by the Dubai courts themselves. This order was granted, and later supported by the DIFC Court of Appeal, and Mrs Akhmedova applied to the Dubai courts for a precautionary attachment of Luna. This too was granted, enforcing the boat’s detention in Dubai.

However, Mr Akhmedov then filed a claim in Dubai that his dispute with his ex-wife was a matrimonial rather than one of commercial debt, and so should have been determined by the Dubai courts in accordance with Shari’a law.

In the latest development, the Dubai’s Court of First Instance has dismissed Mrs Akhmedova’s application for possession, and ordered her to pay expenses and legal fees. The vessel, meanwhile, remains in dock at Prince Rashid Harbour in Dubai.

A spokesman for Mrs Akhmedova said the significance and the substance of the Dubai court’s ruling are not yet clear, as all that has been handed down at this stage is the decision. An appeal will be considered once the full judgment together with reasons is available, the spokesperson said.”

PPLI structuring allows us to move an asset, not physically, but into a structure that allows all of the six principles of Expanded Worldwide Planning (EWP)to function. This gives wealthy international families enhanced privacy and tax benefits, and makes them fully compliant with the world’s tax authorities.

We welcome your thoughts and comments on how we can make this happen for you. You can share them at the bottom of this article or you can Contact Us for more information.

 

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

 

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How to Climb the Mountain of Happiness

PPLI Provides Steps Up the Mountain

Private Placement Life Insurance (PPLI) offers a structure that produces tax efficiency, enhanced privacy, and asset protection. In our opening quote, it can be likened to stepping up the mountain. PPLI is not a goal, but a financial structure that gives wealthy international families key elements of financial happiness.

“PPLI functions more like a trust, than a financial product.”

It is appropriate that this quote is from Confucius. For those unfamiliar with Confucius we will have a biographical sketch later on. What is also connected is Part I of a video that re-creates a presentation that I gave at The 4th FOA Family Think Tank Forum in Shanghai, China, which was held on the campus of Fu Dan University.  I was invited to speak by Ann Lee of the Wintel Law Firm in Shanghai.

The presentation is an introduction to Private Placement Life Insurance (PPLI), and the international tax planning concept of Expanded Worldwide Planning (EWP). The two-day conference was attended by attorneys, accountants, financial planners, insurance brokers, and other professionals who work with high net worth clients in China and the Far East.

First, we have a quote about PPLI from Senior Consultant, The Voice of the Investment Management Consultant.

“Private Placement Life Insurance (PPLI) is much more than an insurance policy. PPLI represents one of the most powerful vehicles available to the high net worth investor in the marketplace today.

PPLI enhances both wealth creation and wealth preservation. Wealth creation is the result of the tax-free growth of the assets in the insurance contract. Wealth preservation is a result of the death benefit paid from the insurance contract.”

Much is written about tax transparency. Many of those who champion tax transparency say that it will result in a system that is more equitable and fair. Will it result in greater happiness? The conclusion of this New York Times article, Happy ‘National Jealousy Day’! Finland Bares Its Citizens’ Taxes offers a different perspective.

“Shortly after 6 a.m. on Thursday, people began lining up outside the central office of the Finnish tax administration. It was chilly and dark, but they claimed their places, eager to be the first to tap into a mother lode of data.

Pamplona can boast of the running of the bulls, Rio de Janeiro has Carnival, but Helsinki is alone in observing “National Jealousy Day,” when every Finnish citizen’s taxable income is made public at 8 a.m. sharp.

The annual Nov. 1 data dump is the starting gun for a countrywide game of who’s up and who’s down. Which tousled tech entrepreneur has sold his company? Which Instagram celebrity is, in fact, broke? Which retired executive is weaseling out of his tax liabilities?

Esa Saarinen, a professor of philosophy at Aalto University in Helsinki, described it as “a fairly positive form of gossip.”

Finland is unusual, even among the Nordic states, in turning its release of personal tax data — to comply with government transparency laws — into a public ritual of comparison. Though some complain that the tradition is an invasion of privacy, most say it has helped the country resist the trend toward growing inequality that has crept across of the rest of Europe.

“We’re looking at the gap between normal people and those rich, rich people — is it getting too wide?” said Tuomo Pietilainen, an investigative reporter at Helsingin Sanomat, the country’s largest daily newspaper. …

Roman Schatz, 58, a German-born author, rolled his eyes, a little, at Finland’s annual celebration of its own honesty. “It’s a psychological exercise,” he said. “It creates an illusion of transparency so we all feel good about ourselves: ‘The Americans could never do it. The Germans could never do it. We are honest guys, good guys.’ It’s sort of a Lutheran purgatory.” …

Economists in the United States have shown great interest in salary disclosure in recent years, in part as a way of reducing gender or racial disparities in pay.

Transparency may or may not reduce inequality, but does tend to make people less satisfied, several concluded. A study of faculty members at the University of California, where pay was made accessible online in 2008, found that lower-earning workers, after learning how their pay stacked up, were less happy in their job and more likely to look for a new one.

A study of Norway, which made its tax data easily accessible to anonymous online searches in 2001, reached a similar conclusion: When people could easily learn the incomes of co-workers and neighbors, self-reported happiness began to track more closely with income, with low earners reporting lower happiness. In 2014, Norway banned anonymous searches, and the number of searches dropped dramatically.

“More information may not be something which improves overall well-being,” said Alexandre Mas, one of the authors of the University of California report. …

One of the great sports of National Jealousy Day is to publicly shame tax dodgers.

In 2015, Mr. Pietilainen found that executives from several of Finland’s largest firms had relocated to Portugal so that they could receive their pensions tax free. His reporting caused such a stir that the Finnish Parliament terminated its tax agreement with Portugal, negotiating a new one that closed the loophole.”

Now a little about the extraordinary life of Confucius from the Simple English Wikipedia. We found this section on Confucius suited our article better than the longer Wikipedia article.

“Confucius (born 551 BC, died 478 BC) was an important Chinese educator and philosopher. His original name was Kong Qiu or Zhong Ni. As a child, he was eager to learn about everything, and was very interested in rituals. Once he grew up, he worked as a state official who handled farms and cattle. Then he became a teacher.

Confucius lived in a time when many states were fighting wars in China. This period was called the Spring and Autumn period of the Zhou Dynasty. Confucius did not like this and wanted to bring order back to society.

Like Socrates, Confucius sometimes did not answer philosophical questions himself. Instead he wanted people to think hard about problems and to learn from others, especially from history. Confucius also thought that people should get power because they were good and skilled, and not just because they came from powerful families.

Confucius wanted people to think about other people more than about money or what they owned. However he also felt that there should be strong rules in society and that people needed to obey them. Confucius thought that there were five relationships people could have, and that they all had their own rules. Two people could be

  • Prince and Subject
  • Father and Son
  • Husband and Wife
  • Elder and Child
  • or Friends

These were traditional relationships called the ‘five prototypes’. Confucius said that in all these relationships, both people must obey rules. For example, a subject must obey a prince, but also a prince must listen to a subject and must rule him well and fairly.

Confucius said that people should only do things to other people if they would be okay with other people doing those things to themselves. This is sometimes called the Golden Rule and was also taught by Jesus Christ.

His students wrote down small stories about him, and things that he said. These were put together to make a book called “The Analects.”

At Advanced Financial Solutions, Inc. the mountain that we climb is the creation of unique asset structures for wealthy international families using PPLI. We welcome you to climb this mountain with us, and achieve a structure that can give you financial happiness. Please contact us today.

 

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

 

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Educational Opposition

PPLI Enhanced Value

Private Placement Life Insurance (PPLI) greatly enhances the value of the assets of wealthy international families. This is accomplished through the six elements of Expanded Worldwide Planning (EWP) which we will present you.

First, let us explore enhanced value. One way to understand something is through understanding what is the opposite of a concept. So what is the opposite of what we call, PPLI Enhanced Value? A candidate might be a fraudulent financial scheme. One has come to light this week in a New York Times article, Where In The World Is Denmark’s $2 Billion? by Paul Caron.

From the Wikipedia page, International tax planning, we give you the six elements of EWP. As you read them, reflect on how they all assist in creating PPLI Enhanced Value.

Privacy

EWP gives privacy and compliance with tax laws. It also enhances protection from data breaches and strengthens family security. EWP allows for a tax compliant system that still respects the basic rights of privacy. EWP 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.

Asset protection

EWP 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 the policy.

Succession planning

EWP includes transfers of assets without forced heirship rules directly to beneficiaries using a controlled and orderly plan. This element of EWP provides a wealth holder a method to enact an estate plan according to his/her wishes without complying with 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.

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.

Compliance simplifier

EWP adds ease of reporting to tax authorities and administration of assets, commercial substance to 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.

Trust substitute

EWP creates a 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.

Now some excerpts from Paul Caron’s article describing what the Danish authorities call one of the greatest financial crimes in the country’s history. Denmark was defrauded $2 billion, which is the equivalent of a $110 billion dollar loss in the far larger U.S. economy.

“The country had fallen victim to a dubious financial maneuver at the intersection of the tax system and capital markets, a dizzyingly complex transaction known as a “cum-ex” trade.

The trade is focused on one of the dullest, most overlooked acts in any financial system — the request for refunds on taxes withheld on dividends. Under Danish law, the government automatically collects taxes on dividends paid out by companies to their shareholders. If the shareholders live in the United States, they are eligible for a refund on some or all of those taxes.

A tiny department in SKAT (the Danish IRS), run by one man, approved thousands of applications for refunds. Most of the applications were filed by self-directed pension plans in the United States, a type of retirement account for individuals.

But experts and lawyers familiar with the scheme say those people were fronts for cum-ex trades. Deploying a kind of financial sleight of hand, the trades made it appear as if the pension plans had purchased shares of Danish companies and paid taxes on the dividends. Neither was true.

To the Danes, it was a fraud, one executed and conceived by Sanjay Shah, a 48-year-old, London-born financier. With an assist from employees, he found the Americans, helped facilitate the applications and ended up with much of the money.

Mr. Shah denies any wrongdoing and through a publicist says he merely took advantage of a loophole. He now lives in Dubai, where he owns a $1.3 million yacht and a 10,000-square-foot villa with access to the beach. He has become Denmark’s national villain.

“You have this guy, living off fraud, it’s infuriating,” said Joachim B. Olsen, a member of the Danish Parliament and chairman of its Finance Committee. “The expectation of the Danish people is that we will go after him, no matter the cost.”

How is PPLI Enhanced Value the opposite of this deceitful fraud scheme? 

At the heart of PPLI structuring is a life insurance policy. A financial instrument common throughout the world, and familiar to most people. PPLI uses this common financial instrument to achieve the six elements of EWP, and this is done with full reporting and compliance throughout the world. This is achieved by respecting the laws and regulations of all jurisdictions involved in the transaction.

PPLI Enhanced Value achieves outstanding benefits by respecting the law and not abusing it as in the Danish fraud scheme.

Please let us know how we can give you PPLI Enhanced Value for your assets, and make the six elements of EWP work for you. We welcome your questions and comments. You can write you inquires at the bottom of this page or you can contact me directly.

 

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

 

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Positive and Beneficial Influence

PPLI Achieves Both

A Private Placement Life Insurance (PPLI) structure exerts a positive and beneficial interest on the assets which it holds. Let us examine how this is accomplished, and also what it means to exert influence. Babies and small children learn very soon how to exert influence on their parents.

I was having dinner with a five year old and his parents recently, and when the five year old ceased to be the center of the conversation, he would emphatically say, “I have something very important to tell you.” Of course, our conversation would cease and the five year old was very pleased!

PPLI achieves this benign influence over assets by employing the six key elements of Expanded Worldwide Planning (EWP). I would say that this influence is much greater than benign–it is transformative. Let us briefly state the importance of these six elements in creating a transformative PPLI policy structure.

Privacy  This is a key element. With FATCA, CRS, and Registers of Beneficial Ownership our clients are looking for ways to keep their affairs private, and still be compliant with tax authorities worldwide. But as you know, it takes study and constant attention to detail to create a proper structure.

Tax Shield  In high tax jurisdictions, a tax shield is important. Why pay more tax than is necessary? If there is a PPLI structure than can give you a tax-free environment wouldn’t it be desired by our clients?

Asset Protection  Asset protection is an element that almost all clients seek. Making their assets inaccessible to former spouses, creditors, and those seeking to claim them without legal authority. An excellently crafted PPLI structure can also accomplish this for them.

Succession Planning  Especially in jurisdictions that have forced heirship rules, succession planning is vital to clients. Most clients wish to distribute their assets according to their wishes and not according to a plan that they don’t agree with.

Compliance Simplifier  In today’s world attempting to hide assets only draws more attention to them. Most clients wish to be compliant with the world’s tax authorities, and at the same time keep as much privacy as possible. Finding our way in this maze of regulations is an important element.

Trust Substitute  In some jurisdictions, in particular, those that use civil law as opposed to common law, a trust substitute would be useful. Why create an entity that in the end will just be ignored by tax and legal authorities? Why not have a PPLI structure that works both in civil and common law jurisdictions?

In the realm of politics, lobbying government officials is a method of attempting to exert influence. There is an outcry of concern when this influence is considered undue influence, and this is defined differently throughout the world. What is lobbying in one country might be considered bribery in another country.

This article by Julie Bykowicz caught our eye this week in one of our favorite publications, The Wall Street Journal,

“The New Lobbying: Qatar Targeted 250 Trump ‘Influencers’ to Change U.S. Policy. Blockaded by Mideast neighbors, the emirate employed an unconventional lobbying campaign to win over an unconventional U.S. president.”

 

“Longtime New York restaurateur Joey Allaham visited Manhattan’s Park East Synagogue late last year with an offer for lawyer Alan Dershowitz. Come visit Doha, the capital of Qatar, by invitation of the emir.

Mr. Dershowitz says he hadn’t met Mr. Allaham before and initially demurred before agreeing to go. The professor also didn’t know he was on a list of 250 people Mr. Allaham says he and his lobbying-business partner, Nick Muzin, identified as influential in President Trump’s orbit.

The list was part of a new type of lobbying campaign Qatar adopted after Mr. Trump sided with its Persian Gulf neighbors who had imposed a blockade on the tiny nation. Qatar wanted to restore good relations with the U.S., Mr. Allaham says. Win over Mr. Trump’s influencers, the thinking went, and the president would follow.”

We look forward to lobbying on your behalf to create a PPLI structure that employs all six of the key elements of EWP.

Please let us know how we can serve you to this end. Place your comments at the end of this post and sign up to get updates.

 

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

 

 

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Overcoming Obstacles Gracefully

Let PPLI Show the Way

Private Placement Life Insurance (PPLI) is a vehicle to overcome obstacles for structuring assets for wealthy international families. This is greatly aided by the concept of Expanded Worldwide Planning (EWP). Sometimes inspiration is necessary to overcome obstacles. To find this inspiration look no further than the remarkable life of Helen Keller. We will learn more about her amazing life later on, but first, let us focus on EWP.

We find the definition of EWP in the Wikipedia page International tax planning. Here is the opening paragraph:

International tax planning also known as international tax structures or expanded worldwide planning (EWP), is an element of international taxation created to implement directives from several tax authorities following the 2008 worldwide recession.

Further explanation is given in the Principles section:

EWP allows a tax paying entity to simplify its existing structures and minimize reporting obligations under the Foreign Account Tax Compliance Act (FATCA) and CRS. At the heart of EWP is a properly constructed Private placement life insurance (PPLI) policy that allows taxpayers to use the regulatory framework of life insurance to structure assets along the client’s planning needs.

These international assets can also comply with tax authorities worldwide. EWP also brings asset protection and privacy benefits that are set forward in the six principles of EWP below. The other elements in the EWP structure may include the client’s citizenship, country of origin, actual residence, insurance regulations of all concerned jurisdictions, tax report requirements, and client’s objectives.

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.

The Six Principles of EWP

To address the obstacles in structuring assets for wealthy international families, these six principles are incorporated in the solution to produce the best possible planning outcome for the family.

Privacy

Asset Protection

Succession Planning

Tax Shield

Compliance Simplifier

Trust Substitute 

The Life of Helen Keller

We return to Wikipedia for this summary of the remarkable life of Helen Keller:

Helen Adams Keller (June 27, 1880 – June 1, 1968) was an American author, political activist, and lecturer. She was the first deaf-blind person to earn a bachelor of arts degree. The dramatic depictions of the play and film The Miracle Worker made widely known the story of how Keller’s teacher, Anne Sullivan, broke through the isolation imposed by a near complete lack of language, allowing the girl to blossom as she learned to communicate. Her birthplace in West Tuscumbia, Alabama, is now a museum and sponsors an annual “Helen Keller Day”. Her birthday on June 27 is commemorated as Helen Keller Day in the U.S. state of Pennsylvania and was authorized at the federal level by presidential proclamation by President Jimmy Carter in 1980, the 100th anniversary of her birth.

Thankfully in our EWP and PPLI structuring we do not face the tremendous challenges faced and overcome so gracefully by Helen Keller. She can serve as a model for all of us for what is possible in the face of extreme difficulty. As always, we welcome your comments and questions.

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

 

 

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The 80/20 Rule

The 20% Is Yours With PPLI

In terms of structuring assets for wealthy international families, Private Placement Life Insurance (PPLI) puts you at the top of your class.  What is top of your class? Let us apply the 80/20 rule.

Wikipedia gives us a brief history of the 80/20 rule.

The Pareto principle (also known as the 80/20 rule, the law of the vital few, or the principle of factor sparsity) states that, for many events, roughly 80% of the effects come from 20% of the causes.

Management consultant Joseph M. Juran suggested the principle and named it after Italian economist Vilfredo Pareto, who noted the 80/20 connection while at the University of Lausanne in 1896, as published in his first work, Cours d’économie politique.

Essentially, Pareto showed that approximately 80% of the land in Italy was owned by 20% of the population.

It is an axiom of business management that “80% of sales come from 20% of clients”. Richard Koch authored the book, The 80/20 Principle, which illustrated some practical applications of the Pareto principle in business management and life.

Expanded Worldwide Planning (EWP) is the overarching principle that our firm embraces that is becoming a new model for those who structure the assets of wealthy international families. If we define success as the 20% part of the 80/20 equation, what are these characteristics that assist in this success:

  • 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 PPLI 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 PPLI death benefit.

80/20 In Action

According to a recent report on CNBC, just three stocks are responsible for most of the market’s gain this year.  Amazon, Netflix, and Microsoft together are responsible for 71% of S & P 500 returns and for 78% of NASDAQ 100 returns.  Not quite 80/20, but the principal is there.

Now let see how the 80/20 plays out more personally in our daily lives. If you have had the experience of working closely with a group of people over a long period of time, you find out their strengths and weakness and your own. 

You find that that some do things well in some areas and not so well in others–and if you are honest with yourself–this applies to observations about yourself too.  So if we take the 80/20 rule as our guide, we are grouped into the 80% part or the 20% part, depending on the task or character trait that we are measuring.

Our firm must conduct diligent research to achieve the aims of the families that approach us for PPLI structuring. We must find the best possible way to give them the tax and enhanced privacy benefits that they seek. Our goal at the end of our research, is to place the family in the 20% part of the equation.

We wish to elevate you to the 20% through our rigorous and thorough PPLI structuring process. We invite you to contact us today so we can begin the process now.

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

 

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The Art of War in Action

Achieve Stealth Victory with PPLI

Private Placement Life Insurance (PPLI) allows you to achieve levels of legitimate privacy not possible with solely planning with trusts. The PPLI policy works in harmony with a trust to create an environment of enhanced privacy. So what war are we talking about? This war is being played out worldwide almost daily between governments and individuals on what constitutes privacy.

This war is not so simple. California just passed a landmark privacy bill, and after the bill’s passage, one aspect that remains ambiguous is what constitutes the data that can be made private at the individual’s choice. We have an excerpt below, courtesy of The Wall Street Journal, by Marc Vartabedian, Georgia Wells, and Lara O’Reilly.

“One of the points of contention is likely to fall around the legislation’s definition of “personal data,” which includes broad categories such as biometric data, psychometric information, browsing and search history and geolocation data. The act’s current version states that personal information doesn’t include information that is publicly available or general enough to not identify an individual, a broad definition technology companies may lean on heavily to argue their collection of such data is justified.”

Thankfully, things are somewhat simpler in our field of planning for wealthy international families. By combining a trust and a properly structured PPLI policy, we can transfer beneficial ownership to the insurance company which creates a much welcomed benefit for families.

This is particularly true for those that reside in countries where the government is unstable or corrupt, or sometimes unfortunately both.  This issue raises real concern for the personal data of wealthy international families in the massive exchange of data now taking place under CRS.

In a recent letter to The Financial Times, Filippo Noseda, a partner at Mishcon de Reya LLP, gives us a startling example:

“In Argentina seven members of the Argentine tax authorities were arrested on February 2 for allegedly selling taxpayers’ information, showing the risks faced by citizens living in high-risk jurisdictions who for one reason or another have bank accounts abroad (Argentine police also seized $5m in cash, which gives a measure of the scale of data trafficking). Dissidents with foreign accounts will be particularly vulnerable to reprisals from their governments.”

Hiding in Plain Sight

What are the steps that allow an insurance company to become the beneficial owner of the assets inside a PPLI policy, and give clients a level of legitimate privacy not possible with other techniques?  Here they are:

  • The policyholder contributes the assets that he or she wants to protect as a premium payment, in cash or in kind, to a bespoke investment fund created by the life insurer. The life insurer opens a dedicated account at a custodian bank for the underlying assets of the policy.
  • The policyholder selects an investment strategy and nominates an investment manager. The life company formally appoints the investment manager.
  • This internal investment fund is exclusively linked to the policyholder’s life policy. The value of the PPLI policy is equal at all times to that of the underlying internal investment fund.
  • The life insurer has now become the Ultimate Beneficial Owner (UBO) of the underlying assets. In return for the premium payment, the policyholder has a “claim” on the life insurer for the value of the underlying investment fund.

This planning technique of using the insurance company as the beneficial owner of the assets in a PPLI policy is akin to what we learn in a 5th century text by Sun Tzu, The Art of War. This famous text teaches ostensibly about war, but its basic message is–avoid open conflict unless it is absolutely necessary.  A few key quotes from the book demonstrate this:

“The supreme art of war is to subdue the enemy without fighting.”

“If you know the enemy and know yourself, you need not fear the results of a hundred battles.”

“A good commander is benevolent and unconcerned with fame.”

This is precisely what we do in marrying a trust with a properly structured PPLI policy.  The result is what we call Expanded Worldwide Planning (EWP). By finding the best of what a trust and an a PPLI policy have to offer, we create this legitimate environment of enhanced privacy without a conflict with tax authorities in any jurisdiction worldwide. This is stealth that achieves a victory by study and superior knowledge.

Please bring us your privacy concerns, so we can construct a bespoke structure that fits the aims and goals of your family.

 

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

 

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Your Pot of Gold Under the Rainbow

PPLI: Uses Non-Disruption to Achieve Disruption

Private Placement Life Insurance (PPLI Category in our blog) shares a key element with so-called disruptive companies–innovative efficiency.  This is expressed in the likes of companies such as Uber and Airbnb. Uber can be thought of as the world’s largest taxi service, but they own no vehicles.  Airbnb has been called the world’s largest hotel, yet they do not own hotel buildings.

They both offer a new approach to common needs: transportation and lodging services. PPLI offers just such a structure for wealthy international families–an efficient tax-free environment for their assets.

One outstanding difference between PPLI and disruptive companies is that PPLI uses what might be called a retro structure, life insurance. We can then also call it a non-disruptive structure that offers benefits that far exceed those of many planning techniques for wealthy international families. What are these outstanding benefits:

  • 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 PPLI 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 PPLI structure provides excellent asset protection.
  • The PPLI structure is low cost with fees averaging 1% of assets.
  • The PPLI 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 PPLI death benefit.

A recent example from the financial world, which has similarities Uber and Airbnb, caught our attention this week, courtesy of The Wall Street Journal by Maureen Farrell and Liz Hoffman:

“Upstarts Crash Wall Street’s $7 Billion Capital-Markets Party”

Ex-bankers from Goldman Sachs, JPMorgan hang out shingles to advise companies on securities offerings

When Twitter Inc. TWTR -1.07% was looking to raise $1 billion from investors earlier this month, it put out the usual calls to Wall Street banks.

The social-media company also called Vijay Culas, who works out of rented office space on a busy stretch of highway in San Mateo, Calif.

A former Goldman Sachs GS +1.06% Group Inc. banker who hung out a shingle in 2014, Mr. Culas helped Twitter negotiate with its banks and ultimately sell a type of hybrid bond for a 1% fee, one of the cheapest offerings in recent memory.

Mr. Culas is among a handful of upstart advisers who are challenging investment banks on turf once thought impenetrable: the $7 billion-a-year business of handling complex stock-related transactions.

Our non-disruptive approach to planning for wealthy international families is expressed in our embrace of Expanded Worldwide Planning (EWP). In the Wikipedia page International tax planning, you will find both the history of EWP and its key elements.

We welcome your inquiries. Our worldwide staff is here to serve your planning needs.

Please contact us today to discuss your own unique situation.

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

 

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How PPLI Negotiates for You

World Leaders Teach EWP

Negotiating is at the heart of Expanded Worldwide Planning (EWP), and Private Placement Life Insurance (PPLI).  What can we learn from the much publicized negotiation between Donald Trump and Kim Jong Un? One thing is obvious about this meeting.  We don’t really know much. The most substantive talks were held in private between the two leaders. As the saying goes, “After all is said and done, more is said than done.”

So what we read in the press about this negotiation is mostly speculation and conjecture, and another part is supplied by our own attitudes towards these world leaders and their countries. This is precisely what is avoided in EWP.  By using a properly structured PPLI policy, we are able to build a plan on a strong foundation of knowledge.

A good part of this solid foundation is insurance regulations. These regulations tend to be simpler and more straightforward than the tax codes of the world’s countries, and supply many key benefits that are not allowed under tax codes.

One definition of negotiating from the Wiktionary is “To succeed in coping with, or getting over something.” This is why we can say PPLI NEGOTIATES FOR YOU. It allows you to succeed using the key elements of EWP: privacy, asset protection, succession planning, tax shield, compliance simplifier, and trust substitute.

How this ability to succeed in planning for wealth international families plays out in detail depends on the particulars involved: where the family reside; the tax codes of the countries where the various family members reside; the nationalities of these family members; the assets involved; and most importantly, the tax and estate planning aims of the family.  All these elements are part of a successful EWP engagement, and what our firm enjoys most–giving families the most cost efficient and comprehensive plan possible.

History of PPLI

In the various press stories on the Trump and Kim Jong Un negotiation are historical perspectives going back to Kim’s father and grandfather. This made us realize that we have never given you a history of PPLI. Here is a short one courtesy of Trusts & Estates by Grant R. Markuson.

“PPLI really began as a way of customizing specific types of insurance products as part of corporate benefit planning for senior executives. Although the rank and file employees may have been happy with the benefits of more typical insurance offerings, senior executives often desired greater investment options, lower fees, and greater overall customization. This, in conjunction with the growing use of variable contracts, led to the birth of individualized PPLI products. The Internal Revenue Service (Service) initially ruled on these types of customized variable products in a series of Revenue Rulings from 1977-1982.

 

In the early 1990s, PPLI products for wealthy individuals surfaced again out of the Channel Islands. Soon after that, Cayman Island and Bermuda based products started to surface. As the hedge fund industry started to pick up steam during this period, many of the products were being specifically developed for these investments. In the mid 1990s, many of the major U.S. and European carriers entered the international PPLI market, which brought this type of planning back into the mainstream.”

To bring our brief history up to the present, we find a robust appetite for PPLI and EWP at present with the fast paced growth of wealthy international families throughout the world. Using PPLI and EWP at the service of these families can achieve bespoke solutions not possible with other methods of international tax planning.

We welcome the opportunity to negotiate on your behalf and reach a successful result for all concerned. Thank you for your continued trust and support. Please give us your thoughts.

 

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

 

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