Q & A – The True Value of Zero = Privacy

Questions and Answers from the book “The Wit and Wisdom of Professor PPLI: How to Achieve Exceptional Asset Structuring with Private Placement Life Insurance”

~ by Michael Malloy, CLU, TEP

 

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Professor PPLI Explains Zero

 Section 3, Part 1

 

Professor PPLI, in this Part we define the concept of zero in a mathematical sense, then, compare this concept to a PPLI asset structure. How are these two related in a practical way?

 We quote from Brian Resnick’s article,

“The mind-bendy weirdness of the number zero explained,” on Vox: “Imagine a box with nothing in it. Mathematicians call this empty box: the empty set.” It is a physical representation of zero. What’s inside the empty box? Nothing.

Now take another empty box, and place it in the first one.

How many things are in the first box now?

There’s one object in it. Then, put another empty box inside the first two. How many objects does it contain now? Two. And that’s how ‘we derive all the counting numbers from zero…from nothing,” Kaplan [Robert Kaplan, a Harvard math professor] says. This is the basis of our number system. Zero is an abstraction and a reality at the same time. “It’s the nothing that is,” as Kaplan said.”

Consider the first box described above as the PPLI policy that is owned by a trust. When a family’s assets are transferred into the policy, like the numbers described by Kaplan, they still remain as assets of the family, but now the beneficial owner of the assets has changed. The beneficial owner of the assets is now the insurance company. The assets do not change, but how they are structured changes.

The taxation of the wealthy and income equality are now hot topics in the popular press and academic circles. Professor PPLI, how do PPLI asset structures fit into this discussion?

Wealthy families are an easy target for some political parties seeking votes by promising new social programs funded by taxes on the rich. The entire discussion is so politicized that it is difficult even in academic circles to obtain objective information.

At Advanced Financial Solutions, Inc. our job is to provide families with the six elements of Expanded Worldwide Planning (EWP): privacy, asset protection, tax shield, compliance simplifier, succession planning, and trust substitute. Our attention is on these six elements, and this is where we focus our energy.

We accomplish bringing the six elements of EWP to our clients through the medium of a conservative and fully compliant PPLI asset structure. We can deliver because the insurance laws worldwide are much simpler than the ever changing tax laws. Tax laws are also more subject to being politicized. This makes planning for wealthy families even more difficult, which is why we mention the political debate in the paragraph above.

In contrast, insurance laws in most jurisdictions throughout the world have, in part, the aim of relieving governments from the burden of collecting even more taxes to provide social programs for their citizens. Life insurance provides death benefits to protect the economic well being of families, and with policies that include a cash value, provide funds for retirement through the accumulate of the cash value of the policies. This makes their citizens less reliant on government programs to provide these important benefits.

Professor PPLI, privacy rights and the concept of zero are discussed in this Part. Please explain how these two things can be linked.

 We use an example from Caroline Garnham of Garnham Family Office services in London, where she discusses how the debate about the Common Reporting Standard (CRS) is playing out in Great Britain in relation to the privacy of beneficial owners of trusts.

In this Part, Doctor Ian at the Math Forum demonstrates how multiplying any number by zero equals zero. “When you multiply one number by another, you can think of starting at some point (‘the spot marked X,’ or wherever) and moving some distance away from it. To move, you need to know two things:

  • How many steps you’re going to take
  • How big each step will be

Now, if each step is of zero size, then you can keep  taking them, and you’ll never move anywhere. (Move a step of length zero. You’re where you started. Do it again. Still there. Keep doing it…how many of those steps will you have to take to actually move somewhere?) So any number times zero is still zero.

Also, if you’re not going to take any steps, it doesn’t matter how large a step you would take, since you’re not going to take it. So zero times any number is still zero.”

Zero in this context is defined as something powerful, but in a sense fundamental, since multiplying it by any number gives the same result, zero. Privacy also has an element of the fundamental, as privacy is enshrined in the constitutional documents of many countries worldwide.

At Advanced Financial Solutions, Inc. we strive to provide clients the maximum privacy that the laws of the various jurisdictions supported by our policies allow. The majority of our policies are issued by companies domiciled in Barbados and Bermuda. These countries have crafted their laws to give wealthy families great benefits in terms of privacy and asset protection. Please let us know how we can assist you in creating an asset structure that does the same for you.

 

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

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Q & A – Frozen Cash Value Unfrozen

Questions and Answers from the book “The Wit and Wisdom of Professor PPLI: How to Achieve Exceptional Asset Structuring with Private Placement Life Insurance”

~ by Michael Malloy, CLU, TEP

 

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Frozen Cash Value Unfrozen

 A PPLI Policy for Today’s World

Section 2, Part 5

 Professor PPLI, in this Part you connect Leonardo da Vinci with a Frozen Cash Value PPLI policy. Please tell us more.

Let us first hear from Fritjof Capra’s book, Learning from Leonardo: Decoding the Notebooks of a Genius:

“Leonardo da Vinci, the great genius of the Renaissance, developed and practiced a unique synthesis of art, science, and technology, which is not only extremely interesting in its conception but also very relevant to our time.”

We doubt Mr. Capra had PPLI in mind when he said, “but also very relevant to our time,” but for us it is most definitely the case. PPLI asset structuring combines all the unique estate planning and tax efficiency elements of a retail Variable Universal Life Insurance policy with the addition of the most advanced asset protection and trust structuring techniques.

PPLI asset structuring unites the legal, trust, life insurance, asset management, and financial planning disciplines and achieves a state of the art result. This sets PPLI asset structuring far above its competitors in the asset structuring world.

You might call a Frozen Cash Value (FCV) PPLI policy design a subset of the PPLI asset structuring tool box. To quote the Frank Suess article in this Part of the book:

“And, what’s most intriguing about it: It’s valid to this day! While most other effective offshore income tax planning tools have gone to the wayside over the past years, the Freeze, and the concept presented in Prof. Hamptons’ article, still works.”

By the “Freeze,” Mr. Suess is referring to the original name given to the Frozen Cash Value policy design by Prof.Craig D. Hampton in his 1994 article, “The Hampton Freeze.”

A FCV policy design solves several practical issues for wealthy families in structuring their assets. Professor PPLI, please tell us more about this.

For many wealthy families who wish access to the cash value of their PPLI policies during their lifetime, there is not the reinsurance capacity to provide enough death benefit to their policies. This is so because on this type of policy design, there needs to be a large enough death benefit to comply with the tests of section 7702(a) of the U.S. Internal Revenue Code.

By complying with this section of the Code, the policy avoids becoming a Modified Endowment Contract (MEC), and thus forfeiting some of the tax advantages of a life insurance contract. A FCV policy design solves this issue. In most situations, the death benefit need be no more than 5% of the total assets contributed to the policy.

The owner of the policy still has access to up to 90% of the assets contributed to the policy during the lifetime of the insured person(s) within the policy, and the gain in the cash value passes as a tax-free death benefit at the passing of the insured person within the policy.

This means that for each $50M in assets, there will only be $2.5M of death benefit. Especially, if the impetus for the policy is to pass a tax-free death benefit to the next generation, this solution works very well. The policy design will always keep the death benefit at 5% above the total assets in the policy. So let us say, the assets grew to $75M at the death of the insured life within the policy. The death benefit component of the policy would then only be $3.75M. But the total death benefit that would pass tax-free would be $75M + $3.75M for a total of $78.75M.

This much lower death benefit described above is also helpful when the insured is in poor health, so if the policy has extra charges because of a health condition, the amount of death benefit is so small that the death benefit can still be very affordable, and the policy can usually be issued.

Professor PPLI, please tell us more about how the increase in the cash value of a FCV policy passes as a tax-free death benefit at the death of the insured person within the policy.

In this Part we provide the following from Michael Kitces’s article, “The Tax-Preferenced Treatment of Life Insurance Policies:”

“To further encourage the use of life insurance, Congress has also provided under IRC Section 7702(g) that any growth/gains on the cash value within a life insurance policy are not taxable each year (as long as the policy is a proper life insurance policy in the first place).

As a result, if a permanent insurance policy is held until death, the taxation of any gains are ultimately avoided altogether; they’re not taxable under IRC Section 7702(g) during life, and neither the cash value growth nor the additional increase in the value of the policy, due to death itself are taxable at death under IRC section 101(a).”

In addition, the offshore insurance companies that provide FCV policies design the policies so that the cash value by definition does not increase. The policyowner only has access to the premium that is contributed to the policy during the lifetime of the insured life(s) for the policy. As stated above the increase in cash value, passes to the beneficiary as a tax-free death benefit at the death of the insured life(s).

Offshore PPLI insurance companies offer policy designs that assist wealthy families throughout the world in their quest to secure the six principles of Expanded Worldwide Planning (EWP): privacy, asset protection, tax shield, succession planning, compliance simplifier, and trust substitute. We invite you to explore these designs at Advanced Financial Solutions, Inc. today by calling us for a no-charge initial consultation.

 

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

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Q & A – PPLI Combines Beauty and Utility

Questions and Answers from the book “The Wit and Wisdom of Professor PPLI: How to Achieve Exceptional Asset Structuring with Private Placement Life Insurance”

~ by Michael Malloy, CLU, TEP

 

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PPLI Combines Beauty and Utility

 Let Us Learn from a Master Thinker

 Section 2, Part 4

 

Professor PPLI, in this Part the influential 20th century thinker, George Santayana, gives us his famous definition of beauty, and concludes:  “Beauty is therefore a positive value that is intrinsic; it is a pleasure.” How is this related to a PPLI asset structure?

His use of “intrinsic” reminds me of the nature of life insurance in a PPLI asset structure. Life insurance is the intrinsic element that makes this possible. Life insurance is a basic financial planning tool that is used in almost all countries throughout the world. PPLI is one variety of this well- recognized and accepted financial instrument. PPLI can become the intrinsic instrument to organize a families worldwide assets into a conservative and easy to understand structure.

At Advanced Financial Solutions, Inc. we are proud to be mentioned in the Wikipedia page for “Private Placement Life Insurance.” This is in the section entitled “Expanded Worldwide Planning.”

“There exist a number of structures that provide clients’ security from data breaches, erroneous government reporting, and the “blanket and indiscriminate nature of automatic exchange under CRS”. Among these structures, Expanded Worldwide Planning (EWP) is a concept that has emerged. It offers international families a framework that enhances privacy and asset protection within a flexible, open architecture platform.

For example, Advanced Financial Solutions, Inc. is one proponent of EWP. It is an element of international taxation created to implement directives from several tax authorities following the 2008 worldwide recession.

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

Advanced Financial Solutions Inc-Wikipedia

The 953(d) election is a major topic in this Part of the book. What are the essentials of this section of the U.S. tax code, and why is it significant for wealthy international families today?

The 953(d) election refers to Section 953(d) of the U.S. Internal Revenue Code (IRC). This is the section that allows a non-U.S. Insurance Company to make the election to be treated as a U.S. taxpayer. This election provides some very material benefits to both the insurance company and policyholders.

For the policyholder and beneficiaries, the insurance structure itself can be used to optimize income, capital gains and estate tax planning. Additionally, there is no withholding tax on U.S. investments as the company is U.S. person with a completed W-9 form.

The “953(d)” insurance company is treated as a domestic corporation by the U.S. government for tax purposes. The insurance company (not the policyholder) completes and submits the W-9 form to the bank, facilitating compliance with U.S. domestic custodians and paying agents. This makes the 35% withholding tax under FATCA a non-issue. The company is not subject to state or federal insurance law being an offshore provider. Finally, there is no requirement to file and maintain form 720.

Professor PPLI, we begin this Part with a famous line from Leonardo da Vinci, “Can’t beauty and utility be combined?” How does this relate to PPLI? 

Probably at least a few of you have taken the back off your laptop computer. At first sight, it is a confusing array of wires and computer chips that confounds the mind of one who knows nothing about computer hardware. This inside look into the device is in sharp contrast to the outside which is a sleek looking case of plastic with a keyboard.

To the uneducated advisor a PPLI asset structure might look like the inside of the laptop in our analogy. To the experienced advisor the finished asset structure is every bit as clean and well-order as the outside of the laptop, because all the various components in the structure function like a computer that is operating at peak performance.

For advisors to take a trust and marry it with many asset classes and beneficiaries, both of which may be spread out over many tax jurisdictions throughout the world, is a daunting task. Much like the inside of our laptop to the untrained eye. For those willing to learn, the benefits to wealthy international families are outstanding in comparison to the learning curve of international PPLI asset structuring.

Returning to Leonardo da Vinci, Yes, beauty and utility can be combined with PPLI into a single well-working structure that is compliant with all the tax jurisdictions that the policy supports. At Advanced Financial Solutions, Inc. this is our specialty.

 

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

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Q & A – PPLI for Wealthy International Families

Questions and Answers from the book “The Wit and Wisdom of Professor PPLI: How to Achieve Exceptional Asset Structuring with Private Placement Life Insurance”

~ by Michael Malloy, CLU, TEP

 

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PPLI for Wealthy International Families

– Including Wealthy U.S. Families

PPLI’s Beautiful Architecture

 Part 3

Professor PPLI, in this Part we have a discussion of light and dark from different perspectives. How can this be relevant to PPLI asset structuring?

Imagine a typical flowchart that is used to depict a PPLI asset structure. On most flowcharts of this type, the PPLI policy box is located in the middle.  Usually the owner, most often a trust, is above the PPLI policy box, and below are the various assets and holding companies necessary to complete the structure.

Let us now hear from physicist, Julian Scudder

“Stars form light as a byproduct of the incredible pressures at their centers…. New stars only unveil themselves to our eyes by using the light they give off to burn away the dust and gas that hid them in darkness.”

Now back to our flowchart. Think of the PPLI policy box as a star at the center of the asset structure. The pressure in our analogy is the well-established insurance laws and regulations throughout the world which make these structures possible.

 This PPLI policy box, now a newly formed star, gives off light to the other elements of the structure like the trust, assets, and beneficiaries so they can shine forth. All the elements then have the light they need to make the entire structure successful. This brings to mind the subtitle of our Part, PPLI’s Beautiful Architecture.

Professor PPLI, why did you include U.S. families in the title along with international families? Aren’t there domestic U.S. policies that can serve their needs?

If all a family’s assets are located in the U.S., they might consider using a U.S. product, but most often this would not work if they had unusual asset classes. Domestic U.S. PPLI companies structure their products as extensions of the standard retail Variable Universal Life products.

In most cases, a family is much better off using an offshore insurance company with a 953(d) election. Not only are fees lower, but the entire structure will put most families closer to their ultimate goal–to achieve the six elements of Expanded Worldwide Planning (EWP): privacy, asset protection, tax shield, succession planning, compliance simplifier, and trust substitute.

In our first answer we made an analogy between PPLI and the physical aspects of a star as it relates to light. Many advisors would find this analogy far fetch as most international tax advisors have little or no knowledge of the asset structuring possibilities of PPLI. Professor PPLI, please expand on this fact for us.

Quite true indeed. Attorneys, trust officers, and accountants are not offered any courses in PPLI asset structuring in their formal education, so they must encounter this outstanding tool later in their practices. Even when they do, they frequently reject it, because they are unaware of this variety of life insurance and equate PPLI with retail products.

This is not helped in the U.S. where a few major insurance companies do offer PPLI, but it is more of an extension of their retail products, as we mentioned in the second answer.

It takes a creative partnership between the various disciplines involved in a PPLI structure to accomplish the magic. When attorneys, asset managers, trust officers, accountants, and insurance advisors truly understand the dynamic asset structuring elements of PPLI, they can ride the exciting wave of what we call in the book the Unifying Factor.

Currently, when the very concept of wealth seems under attack from political parties, governments hungry for tax dollars, and worldwide governing bodies like the OECD, why not embrace the Unifying Factor. Families then can avail themselves of the six principles of Expanded Worldwide Planning (EWP) that we mentioned earlier. At Advanced Financial Solutions Inc., we endeavor to secure the Unifying Factor for each of our clients.

 

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

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Q & A – Elegant Simplicity Revealed

Questions and Answers  from the book “The Wit and Wisdom of Professor PPLI: How to Achieve Exceptional Asset Structuring with Private Placement Life Insurance”

~ by Michael Malloy, CLU, TEP

 

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Elegant Simplicity Revealed 

The PPLI Insurance Code 

Part 2, Section 2

 

Professor PPLI, there is an ironic challenge in presenting PPLI to families. Sometimes there is initial resistance because of a family’s previous experience involving life insurance. But in the end, when the family understands all the benefits of PPLI, they frequently say, “This sounds too good to be true.”

In this section of the book we quote Albert Szent-Gyorgyi, a Hungarian biochemist,

“A discovery is said to be an accident meeting a prepared mind.” 

At Advanced Financial Solutions Inc., our approach is to give the basics of Private Placement Life Insurance, (PPLI), then, have the family “discover” it themselves through their questions. This approach is also more interactive, and is not just a one-sided lecture.

PPLI works somewhat differently throughout the world, and family’s initial perceptions about life insurance differ. In the Far East, life insurance is looked upon as a favorable and conservative financial instrument. In the U.S., those who offer securities frequently position the investments in opposition to life insurance, hence, there might be a less favorable initial perception.

Whatever the perception of life insurance throughout the world, countries like Bermuda and Barbados have crafted their laws in order to have state of the art PPLI policy features. In most jurisdictions in the world, this allows clients with proper structuring the ability to place almost any of their worldwide assets inside a PPLI policy to achieve the maximum amount of privacy, tax efficiency, and asset protection.

Private letter rulings issued by the IRS in the U.S. form a significant body of knowledge that must be understood to properly construct a policy for those with a connection to the U.S.. Professor PPLI, please comment further on this.

Particularly in reference to investor control issues, the revenue rulings that you mentioned are of significance. We list them in this Section of the book.

Investor control is a large subject, so I will give you a few fairly recent items of interest on the subject. From the much cited Webber case, I find this point worth mentioning from the judge in the case, Judge Lauber:

“The ability to choose among broad, general investment strategies such as stocks, bonds or money market instruments, either at the time of initial purchase or subsequent thereto, does not constitute sufficient control over individual investment decisions so as to cause ownership of the private mutual fund shares to be attributable to the policyholders.”

One simple planning technique to shield the wealthowner from investor control is to use a non-grantor trust, and not a grantor trust to own the policy. In most situations, investor control issues pertain to the owner of the policy, and if the wealthowner is not the grantor of the trust, and the trustee of the non-grantor trust makes the investment decisions, the wealth owner is further insulated from investor control issues.

The 7702(g) variety of PPLI has become more popular of late, in part, because of the large premiums families are contributing to policies. On a traditional policy design, this usually means a correspondingly large death benefit for the policy. On a 7702(g) policy, the death benefit component of the policy is usually only 5% of the total assets contributed to the policy, and the policy owner does not have access to the growth of the cash value, during the life of the insured person of the policy. This fact eliminates the constructive receipt element of the investor control theory, as the growth in the cash value passes as a tax-free death benefit at the death of the insured person of the policy. This is just another reason to employ this type of policy design for wealthy families throughout the world.

Attempting to make something that is complex, like the tax code, simple, often results in something that becomes even more complex. This phenomenon is frequently seen in tax legislation throughout the world. This is well stated by a tax law professor in this section of the book. Professor PPLI, what are your thoughts on this subject?

Emily Cauble, Professor of Law at DePaul University, tells us,

“Simplification of tax law is complicated. Yet, political rhetoric surrounding tax simplification often focuses on simplistic, superficial indicators of complexity in tax law such as word counts, page counts, number of regulations, and similar quantitative metrics. This preoccupation with the volume of enacted law often results in law that is more complex in a real sense.”

Why not work with a structure like life insurance, that is inherently simpler and more universally established throughout the world than the shifting sands of the world’s tax codes? Yes, is most definitely our answer at Advanced Financial Solutions.

Some of you might be saying, “Well, this sounds good, but have you ever tried to figure out a life insurance policy? Isn’t it just as complex?” This is very true of most retail insurance policies that have a cash value. Not so with PPLI, which can be illustrated on a simple Excel spreadsheet. Fees are also very low in comparison, and the life insurance component is institutionally priced.

Leonardo da Vinci tells us that “simplicity is the ultimate sophistication.” At Advanced Financial Solutions Inc., we employ this concept in both our PPLI designs and working with families throughout the world.

 

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

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Q & A – Fence = Privacy…Well Sort of

Questions and Answers  from the book “The Wit and Wisdom of Professor PPLI: How to Achieve Exceptional Asset Structuring with Private Placement Life Insurance”

~ by Michael Malloy, CLU, TEP

 

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Fence = Privacy…Well Sort of

Let PPLI Be Your First Defense

Section 2, Part 1

When it comes to the six principles of Expanded Worldwide Planning (EWP), few asset structuring tools work as well as PPLI for wealthy families throughout the world. Professor PPLI, how did this come to be?

You might describe this occurrence as a happy accident. The six principles of EWP came into their own after FATCA and CRS. With these two important changes in the planning landscape, wealthy families wished a more conservative and stable method in which to organize their financial holdings. Why not use a financial tool that has been around in different forms since 100 B.C.? This is, of course, life insurance.

PPLI delivers to  wealthy families all six principles of EWP: privacy, asset protection, tax shield, succession planning, compliance simplifier, and trust substitute. All these outstanding benefits in one low-cost and simple structure.

Professor PPLI, please tell us how the U.S. tax system can benefit wealthy clients throughout the world?

The tax system in the U.S. gives the individual states much independence in structuring their tax laws. In some ways, it can be compared to the cantons in Switzerland that were able to structure their laws to attract corporations from around the world to locate headquarters there. In the U.S. several states compete by designing favorable trust and tax laws that encourage wealthy families from around the world to move their financial assets to these states.

These states are most notable: South Dakota, Nevada, Delaware, Wyoming, and recently New Hampshire. In general the U.S. gives families stability with a strong rule of law that protects personal property. Also, since the U.S. is not a party to CRS there is limited reporting. With the favorable laws in these states coupled with a PPLI policy, the family has an excellent home for its worldwide holdings.

At Advanced Financial Solutions almost all our PPLI policies involve some sort of cross border situation. Professor PPLI, please tell us how these cross border planning situations are best approached.

Throughout the world governments pass new tax laws daily and its citizens and those who come under its jurisdiction must comply with these laws, or face certain penalties. Also, tax laws change frequently and how you must comply does not always translate into a simple answer or number on your tax return.

This is why at Advanced Financial Solutions Inc., we thoroughly research our PPLI structures, and make sure they comply with all the tax authorities involved in the locations of a client’s assets. Because a properly structured PPLI policy can hold almost any asset, this thorough research must be specific to the laws pertaining to this asset class.

For instance, some clients might wish to invest in an Australian security, or others have a private jet registered in a specific jurisdiction. We undertake this research at the beginning of the policy design to insure that it is fully compliant. Even operating businesses can be placed inside a PPLI policy with the proper structuring. This is all part of our unique method of asset structuring for wealthy families throughout the world.

 

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

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Q & A- Transformation Abounds

Questions and Answers  from the book “The Wit and Wisdom of Professor PPLI: How to Achieve Exceptional Asset Structuring with Private Placement Life Insurance”

~ by Michael Malloy, CLU, TEP

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Transformation Abounds 

Professor PPLI and the Caterpillar

Section 1, Part 5

Professor PPLI, we know the many issues that PPLI can solve for wealthy families today, but how did this begin? What are the origins of PPLI?

PPLI began in the 1980s in the United States. It was principally used to structure benefits for senior executives at major corporations. It allowed these executives to customize their investments and provide greater benefits than with the standard plans available.

In the early 1990s, PPLI was adopted by wealthy individuals. Attorneys and other advisors saw that PPLI could be a valuable tool in planning for wealthy clients given all the advantages of life insurance. PPLI allows planners to incorporate all of the key elements of Expanded Worldwide Planning (EWP) into one coherent structure: privacy, asset protection, tax shield, succession planning, compliance simplifier, and trust substitute.

In the mid-1990s, major companies entered the PPLI market. Insurance companies saw the marketing opportunities inherent in PPLI, and we see companies being formed in tax friendly jurisdictions like Bermuda and Barbados. Presently, PPLI is seen as a sophisticated asset structuring tool, and a potent planning technique in the hands of advisors throughout the world.

Professor PPLI, please tell us more about how PPLI transforms assets once they are in the policy structure.

Much like the transformation of a caterpillar into a butterfly, when assets are put into a properly structured policy, the insurance company becomes the beneficial owner of the assets. The owner of the policy, usually a trust, uses the assets for the benefit of the wealthowner, even though there are some restrictions due to the investor control regulations for those clients with a connection to the U.S. For clients who have a connection to the U.S., they must comply with the investor control and diversification regulations.

In today’s world of news leaks and fake news, clients worldwide are seeking legitimate privacy in their financial affairs. In recent years, this has been eroded. Interestingly enough, it is part of the Founding Fathers’ vision of the U.S., and is part of the EU’s founding documents. This legitimate privacy can be achieved by using a U.S. trust situated in certain jurisdictions coupled with a properly structured PPLI policy.

In the environment of global taxation that we have today, what gives PPLI a distinct advantage over other methods of asset structuring?

This advantage can be summarized in two words: life insurance. Life insurance is recognized the world over as a societal benefit, and in most jurisdictions has built-in tax advantages. Because of this we begin the structuring process for wealthy families with a conservative tool, not some new construct recently discovered in the tax code.

For advisors who only use life insurance as a method of introducing liquidity into an illiquid estate, for instance, one that holds mostly real estate, it is a learning process to recognize that a properly structured policy can hold almost any asset that a trust company can have in custody. Having the assets in a policy that is owned by a trust gives the wealthowner distinct advantages that cannot be achieved by a trust alone.

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

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Q & A – Inside and Outside PPLI

Questions and Answers  from the book “The Wit and Wisdom of Professor PPLI: How to Achieve Exceptional Asset Structuring with Private Placement Life Insurance”

~ by Michael Malloy, CLU, TEP

Inside and Outside PPLI

Academics Teach Us a Lesson

Section 1, Part 4

 

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Professor PPLI, a key element in this discussion is magic. Give us more insight into how PPLI makes some things disappear and others appear.

This is a good way to view the topic. When we consider the six elements of Expanded Worldwide Planning (EWP), they can be grouped into these two categories. Elements that disappear and those that make things appear.

These categories are somewhat arbitrary, but allow you to collect certain thoughts around these six elements of EWP. We can place privacy, asset protection, and tax shield in the Disappearing Category.

Legitimate privacy allows wealthy families to conduct their affairs outside the prying eyes of those who do not have a rightful interest in their financial affairs. The tax shield in a properly structured policy eliminates taxes in most jurisdictions throughout the world. Asset protection keeps assets outside the reach of ex-spouses, and those seeking easy access to wealth without proper legal authority. This is accomplished using the correct asset protection trust in tandem with the PPLI policy, which adds another layer of protection to the trust.

In the Appear Category, we place trust substitute, compliance simplifier, and succession planning. In some civil law jurisdictions, trusts are not recognized or do not function as well as they do in common law jurisdictions. Using a PPLI policy in the structure can, in some cases, simplify and enhance the planning. PPLI is definitely a compliance simplifier. Since the insurance company becomes the beneficial owner of the assets inside the policy, reporting obligations are greatly simplified and in some cases eliminated. Since the life insurance death benefit passes directly to the designated beneficiaries, it can deliver the death benefit outside the forced heirship laws that exist in some jurisdictions.

One magical aspect of PPLI is that although it is classified as a life insurance product, it functions more like a trust. Since most policies are owned by trusts, you might say that PPLI and trusts join together and become a successful and secure asset structuring marriage. Professor PPLI, please tell us how this is possible. 

The PPLI policy provides elements which are not possible with a trust alone. A trust can accomplish many useful things such as putting into legal language the aims and goals of the wealth owners. A trust also creates an entity that can live beyond the lives of the wealth owners. The following comparison tells the story.

Trust and Insurance Comparison 

Insurance

  • Contractually based and used by millions
  • Tax deferral
  • Insurance company is beneficial owner
  • Simplified or limited reporting
  • Potentially tax free
  • No capital gains taxes
  • No trustee
  • Asset protection

Trust

  • Provides some asset protection
  • Sometimes seen as a tool for the rich
  • Requires “trustee” with full control
  • More stringent reporting requirements
  • Tax filings for trust and possibly beneficiaries required by some jurisdictions

Professor PPLI, you use two very different academic articles in this Section to illustrate a point. Please explain more fully how these two articles relate to PPLI.

Wealthy families are looking for simple and straightforward methods to structure their assets. In part, these two articles illustrate that the financial, political, and governmental aspects of our lives are in constant change. Laws are enacted which sometimes have the opposite effect than was intended by their creators, as one article proves.

Governments are seeking more ways to tax wealthy families, and this is seen by some as a societal good, and by others as governmental overreach. Once assets are properly structured inside a PPLI policy, they are somewhat isolated from these forces, and can pass to future generations according to the wishes of the wealth owners.

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

Michael Malloy-CLU-TEP

 

 

 

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Q & A – The Rainmaker Cometh

Questions and Answers  from the book “The Wit and Wisdom of Professor PPLI: How to Achieve Exceptional Asset Structuring with Private Placement Life Insurance”

~ by Michael Malloy, CLU, TEP

 

The Rainmaker Cometh

Professor PPLI’s Tanned Face

 Part 3

 

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Professor PPLI, there is the phrase to ‘hide something in plain site.’ Isn’t this similar to PPLI asset structures?

 Yes, you hit upon a key point, both geopolitically and in reference to PPLI. Seeking to hide assets from tax authorities is a thing of the past. The desire to seek legitimate privacy, tax efficiency, and asset protection is accomplished through the medium of life insurance with PPLI. ‘In plain site’ because life insurance is such a conservative and widely accepted financial instrument.

With the correct structuring it can achieve the six principles of Expanded Worldwide Planning (EWP):  privacy, asset protection, tax shield, succession planning, trust substitute, and compliance simplifier.

In this part we quote an extended passage by Charles Dickens on the effects of the wind through an English village. Professor PPLI, how is this analogous to PPLI?

 In nature the wind can be a disruptive force, especially when it blows very hard. Indeed, in the Dickens’ passage that we quote, the wind is a very disruptive force, much like a violent winter storm. To quote a more modern depiction of an emotional storm, here are the opening lines of  a song by Bob Dylan, Shelter from the storm:

‘Twas in another lifetime, one of toil and blood

When blackness was a virtue and the road was full of mud

I came in from the wilderness, a creature void of form

“Come in,” she said, “I’ll give you shelter from the storm”

PPLI is just such “shelter from the storm.” In this section of the book, we also present an article by Simon Gorbutt from the STEP Journal. The article describes in detail how PPLI can assist wealthy international families in cross-border situations.

We quote from the Conclusion of the article: “As families and their wealth gradually disperse, and business and personal relationships evolve, even established planning tools can be rendered inefficient or, worse, obsolete. While no structure will weather all eventualities, the flexibility inherent in life insurance and the breadth of its recognition make it an attractive candidate for completing a modern wealth and succession plan.”

Professor PPLI, one can travel almost anywhere in the world in 24 hours. I think you can say our world is the most widely traveled in history. How does PPLI make successful asset structuring more possible in this environment?

PPLI is a true cross-border structuring tool. Many wealthy families are spread out over the globe. At Advanced Financial Solutions we carefully research all aspects of each country where a family member may reside. We also must look into the laws and regulations surrounding each asset in the PPLI structure to ensure that all reporting requirements are being met. In many cases PPLI greatly simplifies the reporting requirements, because the insurance company becomes the beneficial owner of the assets inside the policy.

 

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

Michael Malloy-CLU-TEP

 

 

 

 

 

 

 

#michaelmalloy #PPLI #privateplacement #lifeinsurance #advancedfinancialsolutions

 

 

 

 

Q & A – Assets for a ‘Rainy Day’

Questions and Answers  from the book “The Wit and Wisdom of Professor PPLI: How to Achieve Exceptional Asset Structuring with Private Placement Life Insurance”

~ by Michael Malloy, CLU, TEP

 

Get the book now!

See original article

Assets for a ‘Rainy Day’

PPLI Keeps You Dry

 Part 2

 Professor PPLI, the client in our dialogue is upset about the condition of his assets. How might PPLI assist him?

 A properly structured PPLI policy functions somewhat like a trust in that it can hold multiple asset classes. To name them individually, the policy can hold:

  • Real Estate/Physical assets;
  • Hedge Funds/Alternative Asset classes;
  • Private Equity;
  • Intellectual Property;
  • Art;
  • Yachts and Private Jets;
  • Alternative Currency denominations.

The insurance company becomes an excellent “home” for multiple asset classes in that:

  • The insurance company is beneficial owner of assets held in the policy;
  • The insurance company is listed as beneficial owner on bank accounts;
  • Transactions are done in the name of the insurance company;
  • There is no look through to policyholders (certain structures).

The discussion in this Part turns to how a client understands or fails to understand an explanation by an advisor. Professor PPLI, how would you explain PPLI to a client in simple, introductory terms?

 I usually begin by saying that PPLI an extension of the retail version of PPLI, Variable Universal Life Insurance, but it functions more like a trust. With proper structuring it can hold almost any asset class. The assets are not subject to taxation once inside the policy, and pass as a tax-free death benefit in most jurisdictions. Most policies are owned by a trust, and the insured life can be any family member or members who have an insurable interest in the policy.

The fees are very low, usually less than one percent of the assets inside the policy. The policy set up fee is usually around one percent of the assets value. The cost of the life insurance is priced institutionally.  The cost is only the wholesale reinsurance company charge with nothing added by the insurance company. These charges are a fraction of the cost of a retail insurance product. The policy also provides excellent asset protection coupled with a correctly written trust.

A paragraph in this Part mentions the function of life insurance in a PPLI policy. Professor PPLI, can you please elaborate on this?

 The life insurance component largely depends upon the family’s aims. If estate planning is paramount, we would use certain policy designs. If access to cash value is key, other policy designs would work better. We can even design a policy where the death benefit is only 5% of the total asset value inside the policy. The death benefit is very much a bespoke element of the policy.

 

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

Michael Malloy-CLU-TEP

 

 

 

 

 

 

 

#michaelmalloy #PPLI #privateplacement #lifeinsurance #advancedfinancialsolutions