Let PPLI Lead the Charge

The Highest Form of Zero

 Part 5

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 Our next few articles will comprise an in-depth look at the five main components of our PPLI Concept Map: Professor PPLI Defines Nothing. We also offer you the fifth part of, “She Was Good For Nothing,” by Hans Christian Andersen. This charming fairy tale supports our theme of nothing.

 The potential of Private Placement Life Insurance (PPLI) as an asset structuring tool for wealthy families has barely been explored. Particularly in a U.S. context, one sees PPLI’s unique traits expressed in numbers, mainly through the compounding of the tax-free growth of its cash value over time. Yes, this is most true and correct, but this is only the beginning of the story.

Just as “the cloud” has taken our data storage to a new level, this article will endeavor to raise your awareness of the myriad possibilities of PPLI for structuring the worldwide assets of wealthy families. This is expressed excellently in the 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.”

Here are a few examples where Advanced Financial Solutions was able to assist wealthy international families.

PPLI Solution A, by Advanced Financial Solutions Inc.

A Chinese client, who is a U.S. green card holder residing in Hong Kong, had pre-IPO stock valued at $10M. Upon going public, it was estimated that the stock will be worth many times this valuation. Through the use of careful planning, we were able to place the stock into a properly structured PPLI policy before the stock went public, thus saving the client $45M in U.S. capital gains tax. He was able to diversify his holdings inside the policy tax-free, and pass his estate tax-free to his heirs. The client accessed the funds inside the policy through low-cost policy loans.

PPLI Solution B

A Chinese family came to us for succession planning for offshore companies owned by the family. They wished to pass these offshore companies located in various parts of the world to their son, who is a green card holder residing in the U.S. Besides transferring the companies at the death of the wealth owner via a properly structured PPLI policy, the son wished to take the profits from the companies and invest them in real estate projects outside the U.S. We created a PPLI structure for the family that accomplished all of these aims. The PPLI structure also gave them tax-deferral on all the future revenue from the companies.

PPLI Solution C

An Israeli client who resides in Italy has a company where all the revenue is generated in Italy. He is also a U.S. green card holder, but spends very little time in the U.S. He had a Nevada company that did the processing of his customers’ orders which came from customers worldwide. The client wished to restructure to lessen his U.S. tax burden which we accomplished for him using a 953(d) offshore PPLI policy.

PPLI Solution D

A young entrepreneur with worldwide holdings in sports, natural resources, gaming, and content management wishes us to check his compliance with FATCA and CRS. He is a U.S. green card holder as well as a UK resident, and citizen of an African country. He had created a dozen companies with excellent potential. We brought him into compliance with tax authorities worldwide with a PPLI structure. We gave his revenues a boost, because in the PPLI structure all the profits become tax-deferred. We protected his family with the low-cost death benefit of the PPLI policy.

We conclude our theme of Nothing by defining it with a Dutch concept, niksen from Olga Mecking in the New York Times article, “The Case for Doing Nothing, Stop being so busy, and just do nothing. Trust us.”

“Running from place to place and laboring over long to-do lists have increasingly become ways to communicate status: I’m so busy because I’m just so important, the thinking goes.

Perhaps it’s time to stop all this busyness. Being busy — if we even are busy — is rarely the status indicator we’ve come to believe it is. Nonetheless, the impact is real, and instances of burnout, anxiety disorders and stress-related diseases are on the rise, not to mention millennial burnout.

There’s a way out of that madness, and it’s not more mindfulness, exercise or a healthy diet (though these things are all still important). What we’re talking about is … doing nothing. Or, as the Dutch call it, niksen.

What is niksen?

 It’s difficult to define what doing nothing is, because we are always doing something, even when we’re asleep.

Doreen Dodgen-Magee, a psychologist who studies boredom and wrote the book “Deviced! Balancing Life and Technology in a Digital World,” likens niksen to a car whose engine is running but isn’t going anywhere.

“The way I think about boredom is coming to a moment with no plan other than just to be,” she said.

Sandi Mann, a psychologist at the University of Central Lancashire in Britain, added that niksen can be “when we’re not doing the things we should be doing. Because perhaps we don’t want to, we’re not motivated. Instead, we’re not doing very much.”

More practically, the idea of niksen is to take conscious, considered time and energy to do activities like gazing out of a window or sitting motionless. The less-enlightened might call such activities “lazy” or “wasteful.” Again: nonsense.”

Part 5 of “She Was Good For Nothing” by Hans Christian Andersen:

“It was just then that my darling boy, who lies sleeping there, was born. Then his father had a long and severe illness, and for nine months I even had to dress and undress him every day. We kept on going backward. We had to borrow more and more; one by one all our possessions were sold; and at last Erik died. Since then I have worked and slaved for the boy’s sake, have gone out scrubbing floors and washing linen, done coarse work or fine, whatever I could get. But I was not to be better off; it is the Lord’s will! He will take me away and find better provisions for my child.” Then she fell asleep.

In the morning she seemed better and decided she was strong enough to return to her work. But the moment she felt the cold water a shivering seized her; she grasped about convulsively with her hands, took one step forward, and fell. Her head lay on the dry bank, but her feet were in the water of the river; her wooden shoes, in each of which there was a handful of straw, were carried away by the current.

And here she was found by Maren, when she came to bring her some coffee.

A message had come to her lodging that the Mayor wanted to see her, for he had something to say to her. It was too late. A doctor was summoned; the poor washerwoman was dead.

“She has drunk herself to death,” said the Mayor.

The letter that had brought the Mayor the news of his brother’s death also gave a summary of his will, and among other bequests he had left six hundred dollars to the glovemaker’s widow, who had formerly served his parents! The money was to be paid at discretion in large or small sums to her and her child.

“There was some nonsense about love between my brother and her,” said the Mayor. “It’s just as well she’s out of the way. Now it will all come to the boy, and I’ll place him with some honest people who will make him a good workman.” And on these words our Lord laid his blessings.

And the Mayor sent for the boy, promised to take care of him, and told him it was a lucky thing his mother was dead; she was good for nothing.

They carried her to the churchyard, to a pauper’s grave. Maren planted a little rose tree on her grave, while the boy stood beside her.

“My darling mother,” he said as the tears started from his eyes. “Is it true that she was good for nothing?”

“No, it is not true!” said the old woman, looking up to heaven. “I have known it for many years and especially since the night before she died. I tell you she was a good and fine woman, and our Lord in heaven will say so, too, so let the world say: ‘She was good for nothing!’ “

 

We wish to take you to the highest level of Expanded Worldwide Planning through careful research of your unique family situation. Please let us begin the process by contacting our office today for a gratis initial consultation to find out if our advanced PPLI structuring methods align with your financial goals.

 

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

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Ancient Wisdom and PPLI

Socrates and King Lear Teach Us a Lesson

 Part 4

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 Our next few articles will comprise an in-depth look at the five main components of our PPLI Concept Map: Professor PPLI Defines Nothing. We also offer you over the next five Parts, “She Was Good For Nothing,” by Hans Christian Andersen. This charming fairy tale supports our theme of nothing.

We introduce examples from ancient history and literature, ancient wisdom, to explain how PPLI can be a perfect fit for international families who seek privacy, tax efficiency, and asset protection. PPLI works excellently in multi-jurisdictional planning for those families seeking domiciles outside their home countries for political and economic reasons.

It is interesting to note that both Socrates and Shakespeare’s King Lear were in a sense exiled in their own kingdoms. Socrates put to death by state officials in Athens, and King Lear left to wander in his own country after political intrigue forced him out. These are highly charged dramatic events. It is sometimes equally so for wealthy international families. More about Socrates and King Lear later in our article.

An article in International Advisor, Who is advising Asia’s ultra wealthy?” by Kirsten Hastings focuses on the role of independent asset managers (IAMs). IAMs are key players in the team that we assemble to achieve a properly structured PPLI policy. Frequently there are multiple IAMs on our teams to accommodate the many asset classes that become part of the PPLI policy. Here are some highlights from this article.

“Wealth in Asia is rising faster than in any other part of the world, meaning that increasing numbers of incredibly rich people need expert advice.

These ultra-high net worth individuals can be beyond the reach of financial advisory and wealth management firms.

And rather than turn to private banks, many are seeking the services of independent asset managers (IAMs).

Also known as external asset managers (EAMs), they have a long history in Europe and the US but were a rarity across Asia as recently as 10 years ago.

The Association of Independent Asset Managers (AIAM) was founded in Singapore in 2011 and only opened in Hong Kong in 2015.

So, what do they do?

Independent asset management involves a client opening an account with a custodian bank, which may be a private bank, and placing assets in the account, according to a 2018 report from recruitment specialists Selby Jennings.

The client then gives the IAM authority and power of attorney as a third party to represent them in managing the investment portfolio and asset allocation.

The assets remain in an account in the client’s name at all times, but the IAM makes decisions on how the assets should be managed.

In addition to investment advice, IAMs also offer tax and succession planning along with a host of other, very bespoke services.

With the high net worth population of the region set to increase by over 40% every year over the next decade, the number of IAMs is also projected to increase – by 25% in Singapore and 50% in Hong Kong, Selby Jennings added.

Insurance and IAMs

“IAMs are starting to realise that the investment returns they generate for their clients could be wiped out by market volatility or different taxes when rebalancing the portfolio or realising the gains.”

He said they are increasingly exploring the functions of insurance to “supplement their client’s planning”.

“Due to the complex needs of the high net worths and global tax frameworks, we see a lot of IAMs are considering different wealth structures like PPLI (private placement life insurance) and are exploring insurance as an asset class.””

International Life Insurance

In keeping with our cross-border and international theme, we quote from International Life Insurance edited by David D Whelehan, JD in the chapter, “International Life Insurance An Overview.”

“This product is for the wealthy, “accredited” investor. They are usually very large single premium structures. It is classified more as an institutional product, as the charges and fees are quite low in comparison to retail products described above. Another advantage is investment flexibility as they generally can be invested in things not permitted in a general account retail product, like hedge funds and private equity.

Premiums and benefits can also be paid in “kind,” as opposed to in cash. In addition, the policyowner can select his, or her, own Investment Manager for just the single policy to invest according to the policyowner’s general directions. The Custodian of the underlying assets in the fund can also be selected by the policyowner. Private placement products are tailored to meet specific objectives of the client, but are carefully designed to be compliant with local tax laws, so as to enjoy the tax treatment desired.”

Socrates Ignorance

 Garth Kemerling’s insightful commentary in the Great Philosophers series gives us an excellent interpretation of what Socrates means by one of his most famous quotes, “I only know that I know nothing.”

It is important to note that Socrates himself did not claim to know better than others. He frequently emphases that he is ignorant of the answer. The importance of this helps to draw the line between dogma and genuine philosophy. It is one thing to state one’s opinion of how things are and should be. Powerful institutions such as religions and political systems are built upon such dogmas and the demands that others abide by them. Socrates, on the other hand, started from a position of ignorance and sought the truth. In the end, he has no dogmatic program for us to follow, just a method for seeking the truth for ourselves, without any guarantee that we will find it. Philosophy as practiced by Socrates is an open system.

When he finds that the experts are just as ignorant about what things really are, he reasons: “I do not suppose that either of us knows anything really beautiful and good, I am better off then he is – for he knows nothing, and thinks that he knows. I neither know nor think that I know.” Socrates concludes that it is better to have ones ignorance tan self-deceptive ignorance. Socrates may not know the ultimate answers to the questions he raises, but he knows himself. It is this self-knowledge and integrity that constitutes the wisdom of Socrates. The open invitation is for all of us to ask ourselves how much we truly know of what we claim.”

Part 4 of “She Was Good For Nothing” by Hans Christian Andersen:

“After he had gone my mistress called me in to speak to me; she looked so grave and yet so kind, and spoke as wisely as an angel indeed. She pointed out to me the gulf of difference, both mentally and materially, that lay between her son and me. ‘Now he is attracted by your good looks, but that will fade in time. You haven’t received his education; intellectually you can never rise to his level. I honor the poor,’ she continued, ‘ and I know that there is many a poor man who will sit in a higher seat in the kingdom of heaven than many a rich man; but that is no reason for crossing the barrier in this world. Left to yourselves, you two would drive your carriage full tilt against obstacles, until it toppled over with you both. Now I know that Erik, the glovemaker, a good, honest craftsman, wants to marry you; he is a well-to-do widower with no children. Think it over!’

“Every word my mistress spoke went through my heart like a knife, but I knew she was right, and that weighed heavily upon me. I kissed her hand, and my bitter tears fell upon it. But still bitterer tears fell when I lay upon my bed in my own room. Oh, the long, dreary night that followed-our Lord alone knows how I suffered!

“Not until I went to church on Sunday did peace of mind come after my pain. It seemed the working of Providence that as I left the church I met Erik himself. There were no doubts in my mind now; we were suited to each other, both in rank and in means; he was even a well-to-do man. So I went straight up to him, took his hand, and asked, ‘Do you still think of me?’

” ‘Yes, always and forever,’ he said.

” ‘Do you want to marry a girl who likes and respects you, but does not love you?’

” ‘I believe love will come,’ he said, and then we joined hands.

“I went home to my mistress. The gold ring that her son had given me I had been wearing every day next to my heart, and every night on my finger in bed, but now I drew it out. I kissed it until my lips bled, then gave it to my mistress and told her that next week the banns would be read for me and the glovemaker.

“My mistress took me in her arms and kissed me; she didn’t say I was good for nothing, but at that time I was perhaps better than I am now, for I had not yet known the misfortunes of the world. The wedding was at Candlemas, and for our first year we were quite happy. My husband had a workman and an apprentice with him, and you, Maren, were our servant.”

“Oh, and such a good mistress you were!” said Maren. “I shall never forget how kind you and your husband were to me!”

“Ah, but you were with us during our good times! We had no children then. I never saw the student again. Oh, yes, I saw him once, but he didn’t see me. He came to his mother’s funeral, and I saw him standing by her grave, looking so sad and pale-but that was all for his mother’s sake. When his father died later he was abroad and didn’t come to that funeral. He didn’t come here again; he became a lawyer, and he never married, I know. But he thought no more of me, and if he had seen me he would certainly have never recognized me, ugly as I am now. And it is all for the best!”

Then she went on to tell of the bitter days of hardship, when misfortune had fallen upon them. They had saved five hundred dollars, and since in their neighborhood a house could be bought for two hundred, they considered it a good investment to buy one, tear it down, and build again. So the house was bought, and the bricklayers and carpenters estimated that the new house would cost a thousand and twenty dollars. Erik had credit and borrowed that sum in Copenhagen, but the captain who was to have brought the money was shipwrecked and the money lost.”

Both Socrates and King Lear ended their lives tragically, yet were both noble in spirit. Socrates accepted his death in an herotic fashion. Lear was reunited with his daughter, Cordelia, yet they died in the confusion of battle between the warring parties at the end of the play. How is this related to PPLI?

Great art strives to ennoble us. This is why it is great, and rises above mere entertainment. At Advanced Financial Solutions our aim is to rise to the highest level of structuring for wealthy international families, giving both maximum privacy, and compliance with tax authorities worldwide.

Our quest is not outwardly considered art, but inwardly its goal is the same–uncompromising excellence. We invite you to partake of this excellence by contacting us today to find out if PPLI structuring is right for you.

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

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Nothing Is Impossible with PPLI

PPLI: Under Higher Laws

 Part 3

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Our next few articles will comprise an in-depth look at the five main components of our PPLI Concept Map: Professor PPLI Defines Nothing. We also offer you over the next five Parts, “She Was Good For Nothing,” by Hans Christian Andersen. This charming fairy tale supports our theme of nothing.

Winnie-the-Pooh gives us one of his most often quoted and enjoyable quotes that reveals new insight into our theme of nothing:

“People say nothing is impossbile, but I do nothing everyday.”

One thing it brings to mind is how we sometimes come to an understanding through both effort and relaxation. We give you examples of this phenomenon from several authors below.

Private Placement Life Insurance (PPLI) was born out of the necessity to achieve greater tax efficiency, privacy, and asset protection in one low cost structure with institutional pricing. This PPLI structure is made possible through the laws and regulations of life insurance. A much more stable and straightforward body of law than the more politicized tax laws and regulations worldwide. Our goal at Advanced Financial Solutions, Inc. is to make possible what is impossible with most asset structuring techniques available to wealthy families today.

In a Wealthmanagement.com article, “Private Placement Life Insurance Primer, Recent tax law changes make for a particularly interesting time to explore PPLI,”  Brian Gartner and Matthew Phillips explain why trustees are particularly attracted to PPLI.

“Trustees are attracted to PPLI in the context of multi-generational trust planning for three main reasons: (1) assets within a trust allocated through PPLI grow on an income tax-deferred basis; (2) the trustee can make income tax-free distributions to trust beneficiaries from PPLI without having to consider the income tax consequences of liquidating assets; and (3) the trust will eventually receive an income tax-free insurance benefit, which will serve to effectively step-up the basis of the assets within the trust that are allocated through PPLI.”

Relax and Create with PPLI

Author, Jonah Lehrer, gives us an explanation of why relaxation is a key ingredient to creativity in an article by Leo Widrich, “Why We Have Our Best Ideas in the Shower: The Science of Creativity.”

“Why is a relaxed state of mind so important for creative insights? When our minds are at ease–when those alpha waves are rippling through the brain–we’re more likely to direct the spotlight of attention inward, toward that stream of remote associations emanating from the right hemisphere.

In contrast, when we are diligently focused, our attention tends to be directed outward, toward the details of the problems we’re trying to solve. While this pattern of attention is necessary when solving problems analytically, it actually prevents us from detecting the connections that lead to insights.

‘That’s why so many insights happen during warm showers,’ Bhattacharya says. ‘For many people, it’s the most relaxing part of the day.’ It’s not until we’re being massaged by warm water, unable to check our e-mail, that we’re finally able to hear the quiet voices in the backs of our heads telling us about the insight. The answers have been their all along–we just weren’t listening.”

PPLI on Vacation

 One definition of vacation is “to vacate to leave empty.” This definition is in keeping with the above description of how we can have our best thoughts when we are relaxed. Amanda Foreman in “The Ancient Origins of the Vacation” gives us a brief history of the concept of vacation.

 “Finally, Americans are giving themselves a break. For years, according to the U.S. Travel Association, more than half of American workers didn’t use all their paid vacation days. But in a survey released in May by Discover, 71% of respondents said they were planning a summer vacation this year, up from 58% last year—meaning a real getaway, not just a day or two to catch up on chores or take the family to an amusement park.

The importance of vacations for health and happiness has been accepted for thousands of years. The ancient Greeks probably didn’t invent the vacation, but they perfected the idea of the tourist destination by providing quality amenities at festivals, religious sites and thermal springs. A cultured person went places. According to the “Crito,” one of Plato’s dialogues, Socrates’ stay-at-home mentality made him an exception: “You never made any other journey, as other people do, and you had no wish to know any other city.”

The Romans took a different approach. Instead of touring foreign cities, the wealthy preferred to vacation together in resort towns such as Pompeii, where they built ostentatious villas featuring grand areas for entertaining. The Emperor Nero was relaxing at his beach palace at Antium, modern Anzio, when the Great Fire of Rome broke out in the year 64.

The closest thing to a vacation that medieval Europeans could enjoy was undertaking pilgrimages to holy sites. Santiago de Compostela in northern Spain, where St. James was believed to be buried, was a favorite destination, second only to Rome in popularity. As Geoffrey Chaucer’s bawdy “Canterbury Tales” shows, a pilgrimage provided all sorts of opportunities for mingling and carousing, not unlike a modern cruise ship.”

Part 3 of  “She Was Good For Nothing” by Hans Christian Andersen:

“The boy cried too, as he sat alone beside the river, guarding the wet linen. The two women made their way slowly, the washerwoman dragging her shaky limbs up the little alley and through the street where the Mayor lived. Just as she reached the front of his house, she sank down on the cobblestones. A crowd gathered around her.

Limping Maren ran into his yard for help. The Mayor and his guests came to the windows.

“It’s the washerwoman!” he said. “She’s had a bit too much to drink; she’s no good! It’s a pity for that handsome boy of hers, I really like that child, but his mother is good for nothing.”

And the washerwoman was brought to her own humble room, where she was put to bed. Kindly Maren hastened to prepare a cup of warm ale with butter and sugar-she could think of no better medicine in such a case-and then returned to the river, where, although she meant well, she did a very poor job with the washing; she only pulled the wet clothes out of the water and put them into a basket.

That evening she appeared again in the washerwoman’s miserable room. She had begged from the Mayor’s cook a couple of roasted potatoes and a fine fat piece of ham for the sick woman. Maren and the boy feasted on these, but the patient was satisfied with the smell, “For that was very nourishing,” she said.

The boy was put to bed, in the same one in which his mother slept, lying crosswise at his mother’s feet, with a blanket of old blue and red carpet ends sewed together.

The laundress felt a little better now; the warm ale had given her strength, and the smell of the good food had been nourishing.

“Thank you, my kind friend,” she said to Maren, “I’ll tell you all about it, while the boy is asleep. He’s sleeping already; see how sweet he looks with his eyes closed. He doesn’t think of his mother’s sufferings; may our Lord never let him feel their equal! Well, I was in service at the Councilor’s, the Mayor’ parents, when their youngest son came home from his studies. I was a carefree young girl then, but honest-I must say that before heaven. And the student was so pleasant and jolly; every drop of blood in his veins was honest and true; a better young man never lived. He was a son of the house, and I was only a servant, but we became sweethearts-all honorably; a kiss is no sin, after all, if people really love each other. And he told his mother that he loved me. She was an angel in his eyes, wise and kind and loving. And when he went away again he put his gold ring on my finger.”

Using a conservative PPLI asset structuring plan can help you relax in relation to worldwide tax authorities. In a properly structured PPLI policy, you will be in full compliance, yet your assets will be in a tax-free environment, and will pass as a tax-free to the heirs of your choice. We welcome you to take a vacation from more complicated and aggressive strategies, and call us today for a no obligation initial consultation. One Worldwide Toll-Free Number to Serve You: +1 877-811-5846

 

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

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How Can Nothing Exist?

The Zen of PPLI

Part 2

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 Our next few articles will comprise an in-depth look at the five main components of our PPLI Concept Map: Professor PPLI Defines Nothing. We also offer you over the next five Parts, “She Was Good For Nothing,” by Hans Christian Andersen. This charming fairy tale supports our theme of nothing.

One definition of the word nothing is “something that does not exist.” If something does not exist, what is this something? The word nothing, in a sense, contradicts itself. We liken it to our favorite topic, Private Placement Life Insurance (PPLI). How can a mere life insurance policy accomplish so much for the assets of wealthy families? How does PPLI incorporate the six principles of Expanded Worldwide Planning (EWP) to give wealth families so many benefits?

When someone truly understands the power and versatility of planning with PPLI, they frequently ask me “what if tax authorities disallow PPLI?” My reply focuses on the role of life insurance in society throughout the world.

Below are two articles that reflect this role. Harold D. Skipper Jr.’s article,  “The Taxation of Life Insurance Policies in OECD Countries: Implications for Tax Policy and Planning” would not even have been written, if life insurance did not occupy such an important role in the fabric of society.

As Mr. Skipper Jr. states in the Summary and Conclusion of the article below, this unique role adds economic stability and partially relieves governments in their role of providing this stability.

 “VI. SUMMARY AND CONCLUSIONS The purpose of this study has been to examine life insurance product taxation in OECD countries and thereby to provide insight for countries as they develop or revise life insurance tax policies. Life insurance plays important economic and social roles for both individuals and societies. Life insurance affords individuals, families, and businesses the opportunity to hedge against the adverse financial consequences of death and to save in a convenient, perhaps quasi-compulsory manner.

As important financial intermediaries, life insurance companies help mobilize national saving to support greater national investment. Enhanced investment is a prerequisite to stronger, long-term economic growth. Additionally, individually purchased life insurance undoubtedly relieves pressure on social welfare systems, thus minimizing taxes.

The financial sector – including the life insurance industry – is believed to have a special role to play in the transformation and development of economies. This is because of the need for a more efficient allocation of savings, for strong stabilization policies and structural reforms, for overall confidence building, and for particularly strong sources of external finance for non-financial businesses.”

 This important and vital role of life insurance is further expressed in this Economist article, “The life-insurance industry is in need of new vigour,” about the current state of the life insurance industry throughout the world.

“LIFE insurance is among the oldest financial products. The Amicable Society, founded in London in 1706, charged members a set contribution and paid out annually to widows and children of those who had died in the previous 12 months. Today it is a vast industry: life and health insurers employ over 800,000 people in America alone. It protects hundreds of millions against the risk of dying early, through death benefits, or the risk of living longer than expected, for example through annuities. According to Allianz, a German insurer, total life-insurance premiums are above 5% of GDP in many rich countries, including Britain, France, Italy and Japan. In America, the world’s biggest market, annual premiums total more than $550bn.”

The article goes on to state how there are fewer life insurance companies today and they must hold greater amounts of assets in reserve to pay claims, so as a business it is somewhat less profitable than in years past. Its significance in the world of finance is still large and undisputed. The large premium deposits of PPLI policies only add to this financial significance.

Zen and PPLI

Zen is known in part for its simplicity. In art this is well expressed in the art form of rock gardens. We liken this to PPLI, because at the heart of this unique asset structuring tool is a life insurance policy. This is a contradiction to many who consider themselves to be financially astute. How can a simple life insurance policy accomplish so much? How can a large expanse of white sand with a few rocks be so artistically satisfying?

Mihoyo Fuji  gives us a little history about one of Zen’s most famous rock gardens on her website Zero=Abundance.

Ryoan-ji Sekitei (rock garden) is probably the most famous and mysterious kare-sansui. Although it’s believed that it was created around 1500, it is not known who designed this garden and what the theme was. For more than 500 years, people have been trying to solve the mysteries. There are many theories.

There are only 15 rocks installed in a small space of about 800 square feet (74 square meters). The 15 rocks form three groups of 7 (5+2), 5 (3+2) and 3 pieces, the three odd numbers. The combination of those numbers have stirred so many theories, involving everything from ancient Chinese Yin-and-Yang philosophy to the European “golden ratio.”

One of the most famous theories is that the rocks tell the story of a tiger and its three cubs crossing the river, based on ancient Chinese folklore. But how do four tigers translate into 15 rocks? No one has come up with a reasonable explanation.  Some other people believe that the garden is supposed to express “imperfection” to remind us that we are all imperfect.  While the number 15 was considered to constitute the perfect universe, this garden was designed so that you can never see all of them at once: the view of at least one rock is always blocked no matter where you are. Other theories suggest that the rocks represent five major Zen temples, or five major mountains in China.

There are no longer any rocks that replicate real objects in a way we can tell what they are. Everything is elevated to a conceptual, abstract level.”

Part 2 of “She Was Good For Nothing” by Hans Christian Andersen:

“Just then came an elderly woman, poorly clad, lame in one leg, and with an enormously large, false curl hanging down over one of her eyes, which was blind. This curl was supposed to hide the eye, but it only made the defect the more conspicuous. The neighbors called her “limping Maren with the curl,” and she was an old friend of the washerwoman’s.

“You poor thing,” she cried, “slaving and toiling in the cold water! You certainly need something to warm you a little, and yet the gossips cry about the few drops you take!” And soon all that the Mayor had said to the boy was repeated to his mother, for Maren had overheard it, and it had angered her to hear him talk so to the child about his own mother and the few drops she took, because on that same day the Mayor was having a big dinner party with many bottles of wine.

“Good wine, strong wine! Many will drink more than they should, but they don’t call that drinking. They are all right, but you are good for nothing!”

“What! Did the Mayor really say that, child?” asked the laundress, her lips quivering. “So you have a mother who is good for nothing! Perhaps he’s right, though he shouldn’t say so to a child. But I mustn’t complain; good things have come to me from that house.”

“Why, yes, you were in service there, when the Mayor’s parents were alive. That was many years ago. Many bushels of salt have been eaten since then, so people may well be thirsty! laughed Maren. “The big dinner today at the Mayor’s would have been postponed if everything hadn’t been prepared. I heard the news from the porter. A letter came, an hour ago, telling them that the Mayor’s younger brother, in Copenhagen, is dead.”

“Dead!” cried the laundress, turning as white as a ghost.

“What does it matter to you” said Maren. “Of course, you must have known him, since you worked in the house.”

“Is he really dead? He was the best and kindest of men-indeed, there aren’t many like him!” Tears were rolling down her cheeks. “Oh, my God!

Everything is going around! That’s because I emptied the bottle. I couldn’t stand so much. I feel so ill!” And she leaned against the fence for support.

“Good heavens, you are ill, indeed!” said Maren. “Try to get over it! No, you really are sick! I’d better get you home!”

“But the washing there!”

“I’ll take care of that. Here, give me your arm. The boy can stay here and watch it till I come back and wash what’s left. It’s only a few pieces.”

The poor laundress’ legs were trembling under her. “I’ve stood too long in the cold water, with no food since yesterday! I have a burning fever. Oh, dear Lord Jesus, help me to get home! Oh, my poor child!”

And she wept.”

Please find out for yourself how a properly constructed PPLI policy can catapult you to the highest level of asset structuring, giving you enhanced tax benefits, privacy, and asset protection–all in one simple structure. Please call us today for a bespoke consultation. One Worldwide Toll-Free Number to Serve You: +1 877-811-5846.

 

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

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New book coming soon

The Wit and Wisdom of Professor PPLI

How to Achieve Exceptional Asset Structuring with Private Placement Life Insurance

by Michael Malloy, CLU, TEP

 

Introduction

I would like to introduce you to Professor PPLI, a bird of many talents. He is well versed in tax law, life insurance, and the many topics that support a knowledgeable presentation of Private Placement Life Insurance (PPLI). With his great expertise, he will guide you through the myriad structuring possibilities of this unique asset structuring tool–PPLI.

The territory is vast, but with his keen bird’s view, he can assess structuring possibilities applicable to your own unique situation–those impossible to see with normal sight.

To better acquaint you with the territory, he will present you with our original sources of inspiration. He calls them concept maps, but they are most akin to preliminary sketches. You will find these concept maps at the end of each of the three chapters. Think of them as the first sketches that brought the topics to life. They were the springboards to a more in depth presentation that takes place in the fifteen articles.

Professor PPLI will help you navigate through the six Elements of EWP to see more clearly which structure would fit your personal needs the best. He has served wealthy families throughout the world in structuring their assets, benefiting these families with enhanced privacy, asset protection and tax savings in one single unified structure.

This territory of the six elements of Expanded Worldwide Planning (EWP) is not uncharted, Wikipedia has already recognized it by featuring the six elements prominently on their page “International Tax Planning.”  We have reproduced this Wikipedia page in its entirety to give you first hand a detailed look at these six important elements.

There is much good material on PPLI of a more academic and scholarly nature. This is not our aim. Like a keen sighted bird of prey, Professor PPLI sees opportunities where the six elements of EWP are combined specially to untie the knots of difficulty that may be embedded in your current asset structure.

Our choice of images furthers our aim to instruct in a deeper more holistic manner. We invite you to make connections between the images and the written text. This gives you the ability to bring your own experience and understanding to our topic of PPLI structuring–not a direct academic understanding, but one that is unique to your own life experience. Our hope is that you make this knowledge your own and benefit directly from it.

 

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

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The True Value of Zero = Privacy

Professor PPLI Explains Zero

Part 1

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Our next few articles will comprise an in-depth look at the five main components of our PPLI Concept Map: Professor PPLI Defines Nothing. We also offer you over the next five Parts, “She Was Good For Nothing,” by Hans Christian Andersen. This charming fairy tale supports our theme of nothing.

Zero is a powerful number. Any number multiplied by zero becomes zero. Yet, zero is also nothing. How does this nothing relate to the topic of our using of Private Placement Life Insurance (PPLI) to structure the assets of wealthy families? Unless you understand how PPLI works with the six principles of Expanded Worldwide Planning (EWP), you will understand  nothing about PPLI. PPLI makes these six principles come alive like nothing else in the realm of asset structures.

First, we will explore the concept of nothing from a mathematical  perspective, then move on to its relationship to EWP, and conclude with how this all relates to one of the six principles of EWP, privacy.

The Power of Zero

Doctor Ian at the Math Forum demonstrates how multiplying any number by zero equals zero.

“1 * 0 = 0

27 * 0 = 0

1,887,457,234,543,243,113,946 * 0 = 0

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:

  1) how many steps you’re going to take

  2) 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 still 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.”

For our exploration of zero in the world of PPLI tax structuring, we can think of zero as the actual insurance policy that holds a family’s assets in separate accounts in the name of a custodian such as a trust company, which will be in the name of the beneficial owner of the assets–the insurance company. The assets do not change, but how they are structured changes.

Since you can place almost any asset that can be held by a trust company into a PPLI policy, the insurance policy acts like the empty box that we use to explain the concept of zero. The empty box is an abstraction, yet like the PPLI policy, it is the vehicle that can help achieve the six principles of EWP for wealthy families.

Brian Resnick’s article, “The mind-bendy weirdness of the number zero, explained,” on Vox gives us:

Zero is in the mind, but not in the sensory world,” Robert Kaplan, a Harvard math professor and an author of The Nothing That Is: A Natural History of Zero says. Even in the empty reaches of space, if you can see stars, it means you’re being bathed in their electromagnetic radiation. In the darkest emptiness, there’s always something. Perhaps a true zero — meaning absolute nothingness — may have existed in the time before the Big Bang. But we can never know.

Nevertheless, zero doesn’t have to exist to be useful. In fact, we can use the concept of zero to derive all the other numbers in the universe.

Kaplan walked me through a thought exercise first described by the mathematician John von Neumann. It’s deceptively simple.

Imagine a box with nothing in it. Mathematicians call this empty box “the empty set.” It’s 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 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.”

Since  we are exploring zero as an abstract concept, we will put it to another use below when we discuss privacy. In a sense everything can only be defined through its relationships with other elements and factors. Not wishing to be alone in stretching our meanings too far let us hear from Humpty Dumpty and Alice in Lewis Carroll’s Alice in Wonderland.

“When I use a word,” Humpty Dumpty said, in rather a scornful tone, “it means just what I choose it to mean—neither more nor less.” “The question is,” said Alice, “whether you can make words mean so many different things.” “The question is,” said Humpty Dumpty, “which is to be master—that’s all.”

How Zero = Privacy?

Now let us equate privacy with Mr. von Neumann’s first box above. Remember this first box is described as an “abstraction and a reality at the same time.” This can equally be said of a term like privacy. Privacy can be defined in the abstract, but it is how it is interpreted in reality that counts.

In many jurisdictions, privacy is considered a fundamental principle. In the U.S the right to privacy is stated in the Fourth Amendment to the U.S. Constitution:

“The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.”

A right to privacy is explicitly stated under Article 12 of the 1948 Universal Declaration of Human Rights issued by the United Nations General Assembly:

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

Caroline Garnham of Garnham Family Office Services in London writes with clarity and understanding about issues affecting wealthy clients. What follows is a telling description of a government’s thirst for tax dollars trampling on its citizens fundamental privacy rights. These are excerpts from her article, “It isn’t fair? Part 3.” How is “tax fairness” playing out in Great Britain today? This article relates recent incidents and key players in the drama.

“Edward Troup, now Sir Edward Troup was appointed Executive Chair and Permanent Secretary to HMRC in April 2016, for which he was knighted in the 2018 new year’s honours list. He was the former head of the firm’s tax department and the most brilliant brain I have ever encountered.

‘Tax law does not codify some Platonic set of tax raising principles. Taxation is legalised extortion and is valid only to the extent of the law’ – a point of with which I concur.

We have tightened our grip on those who deliberately cheat the system and continue to pursue those who refuse to pay what they owe.’

But the question now is, has HMRC gone too far?

The House of Lords Economic Affairs Committee, EAC, published its findings in December 2018, and thinks so!

A ‘careful balance must be struck between clamping down and treating taxpayers’ fairly. Our evidence has convinced us that this balance has tipped too far in favour of HMRC and against the fundamental protections every taxpayer expects.’

In 2000 some employers set up Employee Benefits Trusts for their employees.

This arrangement was considered effective in avoiding tax.

In 2010 HMRC warned that such arrangements were unacceptable, and that those who used such an arrangement had to repay the loan, pay the tax or face fines.

It is clear from what has already been published that the information to be received by HMRC this year from offshore financial institutions under the Common Reporting Standard once analysed will be used to attack settlors of offshore trusts. The first such attacks are expected in about six months.

HMRC has said that it will first go for well-known names with significant assets in trust. It has been advised to attack structures which have Persons of Significant Influence on the basis of sham. It will then look very closely for clauses in the Trust Deed once provided absolving the Trustee from any form of liability and duty to interfere. This it will take as further evidence that the Trust was nothing more than a nominee arrangement and tax the settlor as if no trust had been set up together with 200% penalties.”

Part 1 of “She Was Good For Nothing” by Hans Christian Andersen:

 “The mayor was standing at his open window; he was wearing a dress shirt with a dainty breastpin in its frill. He was very well shaven, self-done, though he had cut himself slightly and had stuck a small bit of newspaper over the cut.

“Listen, youngster!” he boomed.

The youngster was none other than the washerwoman’s son, who respectfully took off his cap as he passed. This cap was broken at the rim, so that he could put it into his pocket. In his poor but clean and very neatly mended clothes, and his heavy wooden shoes, the boy stood as respectfully as if he were before the king.

“You’re a good boy, a well-behaved lad!” said the Mayor. “I suppose your mother is washing down at the river, and no doubt you are going to bring her what you have in your pocket. That’s an awful thing with your mother! How much have you there?”

“A half pint,” said the boy in a low, trembling voice.

“And this morning she had the same?” continued the Mayor.

“No, it was yesterday!” answered the boy.

“Two halves make a whole! She is no good! It is sad there are such people. Tell your mother she ought to be ashamed of herself. Don’t you become a drunkard-but I suppose you will! Poor child! Run along now.”

And the boy went, still holding his cap in his hand, while the wind rippled the waves of his yellow hair. He went down the street and through an alley to the river, where his mother stood at her washing stool in the water, beating the heavy linen with a wooden beater. The current was strong, for the mill’s sluices were open; the bed sheet was dragged along by the stream and nearly swept away her washing stool, and the woman had all she could do to stand up against it.

“I was almost carried away,” she said. “It’s a good thing you’ve come, for I need something to strengthen me. It’s so cold in the water; I’ve been standing here for six hours. Have you brought me anything?”

The boy drew forth a flask, and his mother put it to her lips and drank a little.

“Oh, that does me good! How it warms me! It’s just as good as hot food, and it isn’t as expensive! Drink, my boy! You look so pale, and you’re freezing in your thin clothes. Remember it is autumn. Ooh, the water is cold! If only I don’t get ill! But I won’t. Give me a little more, and drink some yourself, but only a little drop, for you mustn’t get used to it, my poor dear child!”

And she walked out of the water and up onto the bridge where the boy stood. The water dripped from the straw mat that she had tied around her waist and from her petticoat.

“I work and slave till the blood runs out at my fingernails, but I do it gladly if I can bring you up honestly, my sweet child!””

We hoped you enjoyed this article and the beginning of Hans Christian Andersen’s fairytale. Nothing turns out to be an exciting topic for us, and we will continue our lively topic in the next four articles. Please bring us your PPLI questions and inquiries. We enjoy all opportunities to discuss our favorite topic, and bring you an asset structuring tool that offers so many exceptional benefits. Contact Us!

 

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

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Frozen Cash Value Unfrozen

A PPLI Policy For Today’s World

 Part 5

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 Our next few articles will comprise an in-depth look at the five main components of our PPLI Concept Map: Professor PPLI meets Leonardo da Vinci.

 Like few profound thinkers Leonardo da Vinci was able to cross-fertilize many disciplines. To name a few art, science, aviation, engineering, music, and elaborate pageants at Italian courts. Many advisors lack knowledge of the outstanding properties of Private Placement Life Insurance (PPLI), because it is a combination of several disciplines: investing, life insurance, asset protection, and estate planning.  This inability to grasp the many planning possibilities of PPLI brings to mind this thought of Leonardo:

“Iron rusts from disuse, stagnant water loses its purity, and in cold weather becomes frozen; even so does inaction sap the vigors of the mind.”

“Cold weather becomes frozen” prefigures one of our main topics, Frozen Cash Value life insurance. Much more on this topic later.

We are also led to the overarching planning concept that informs our PPLI planning, Expanded Worldwide Planning (EWP) which embodies these six characteristics: privacy, asset protection, succession planning, tax shield, compliance simplifier, and trust substitute.

In this series, our earlier articles spoke about the advantages of using PPLI companies domiciled in locations such as Barbados, Bermuda, and other jurisdictions with insurance codes that enhance the possibilities of structuring assets with PPLI. For those with a connection to the U.S., we stressed the importance of using PPLI companies that have made a 953(d) election. We now will add a powerful third element, a PPLI policy that is termed Frozen Cash Value. This is a policy that fails to meet the IRS’s various cash value tests for code section 7702, and qualifies as life insurance under 7702(g).

Here we have a flowchart courtesy of  John Adney, Esq. Davis & Harman LLP  Brian G. King, FSA, MAAA Ernst & Young LLP  Craig R. Springfield Davis & Harman LLP, Esq. This flowchart was part of their “Life Insurance Boot Camp” presentation

History of the Frozen Cash Value Policy

 Let us start at the beginning. To my knowledge the first person to recognize the outstanding potential of using a Frozen Cash Value policy for wealthy clients was Prof. Craig D. Hampton. He called his concept The Hampton Freeze, and wrote an article by the same name in Offshore Investment, in October 1994. Here is Prof. Hampton’s account of his first client presentation using the Frozen Cash Value concept.

“I was visiting a gentleman at his home in the Piccadilly district of London. It was explained to me that his net worth exceeded US$100 million by a substantial margin. I noticed the presence of a computer terminal on a large desk in his den. It was surrounded by reams of paper dealing with offshore investing.

It soon became apparent that his affluence was due to his own efforts when he said to me: “You’re a bright young man who obviously knows his craft. But what can you tell me that I don’t already know about finances?”

I leaned forward and made this simple statement: “Through the creative use of international life insurance, your financial affairs can be arranged so that you will never have to pay income taxes for the rest of your life!” The gentleman took serious notice, and thus was born The Hampton Freeze.”

“The Freeze” Works If You’re Too Rich, Too Old, or Not in Good Health.

Frank Suess’s article, “Never again pay income taxes for the rest of your life,” in The Daily Coin, speaks further about the FCV policy.

“PPLI to this day, is an important tool in our offering. Over the years, many of our clients have employed this tool, which beyond the tax benefits, effectively integrates the benefits of legal asset protection, global investment flexibility, privacy and generational planning features.

While I am not aware of any insurance carrier, today, offering a PPLI policy called the Hampton Freeze, Prof. Hampton’s concept has certainly lived on. Since his article in 1994, a series of products has been created by the industry. These policies are generally referred to as limited cash value policies. The most commonly used product is called a Frozen Cash Value policy. So, the “Freeze” has lived on at least partially.

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. Hampton’s article, still works.

You may now wonder how the Freeze works. I recommend you read the article. In brief, it is based on the US tax code (‘the Code’) and its articles relating to life insurance, primarily in section 7702. While ordinary PPLI policies will have their limitations when it comes to insured persons that are too old or in bad health, and no common products will be available for very large premiums, the Hampton Freeze does not know such limitations.

Let me explain in brief, without boring you with technicalities. The Code defines a number of actuarial rules regarding the cash value and the face amount of life insurance policies. They must meet certain minimum risk coverage (death benefit) levels in order to be tax-compliant.

Therefore, based on actuarial best practices and the limitations of reinsurance levels available internationally, you will not have access to the tax freedom offered if you’re too rich. In other words, the limitations of reinsurance are, internationally, at a level of roughly US$40 to US$50 million of life risk. If you’re premium is too high, you will not be able get a policy. In order to keep within the actuarial tests defined by the Code, there will not be enough re-insurance available. Thus, no policy. Equally, you will not have access to the tax freedom of PPLI if you’re in bad health. You will fail at the medical. And, you are locked out of the world of PPLI if you are too old.

The Hampton Freeze removed those limitations. Thus, the largest policies written today frequently make use of the limited cash value concept born in 1994. We too regularly make use of this planning tool. My utmost respect and gratitude to you Prof. Hampton! Good work indeed!”

To complete our history of the FCV policy, Gerald Nowotny, an excellent commentator on many aspects of PPLI, gives us this note from his article, “Frozen Cash Value Life Insurance – A sophisticated tax planning solution for ultra-high-net-worth taxpayers.”

“My experience with FCV policies goes back to 1999, when Scottish Life and Annuity offered a FCV policy. The life insurer secured a favorable opinion from a large law firm. In fact, I’ve reviewed at least four favorable opinions on FCV from large law firms over the course of the last 10 years.”

Leonardo and FCV Both Solve Important Issues

Just as a FCV policy will solve many issues facing wealthy clients today, Leonardo solved many issues during his lifetime, even before his contemporaries thought of them as issues! Here is an excerpt 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.

As we recognize that our sciences and technologies have become increasingly narrow in their focus, unable to understand our multi-faceted problems from an interdisciplinary perspective, we urgently need a science and technology that honor and respect the unity of all life, recognize the fundamental interdependence of all natural phenomena, and reconnect us with the living Earth. What we need today is exactly the kind of synthesis Leonardo outlined 500 years ago.”

Commentators of tax issues frequently site 7702(g) as a catchall section of the tax code whereby policies that do not qualify under other sections of 7702 can still have the tax benefits of life insurance.

Michael Kitces’s article, “The Tax-Preferenced Treatment of Life Insurance Policies,” gives us this about 7702(g). His comments echo these commentators, but it is framed in a positive light.

“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).”

PPLI gives wealthy families many benefits that cannot be achieved by any other type of planning. Please give us the opportunity to structure your assets to achieve these exceptional benefits. Each family situation is unique. Let us help you explore the PPLI potential of your unique situation, so you can achieve these exceptional benefits. Contact Us!

 

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

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PPLI Combines Beauty and Utility

Let Us Learn from a Master Thinker

Part 4

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 Our next few articles will comprise an in-depth look at the five main components of our PPLI Concept Map: Professor PPLI meets Leonardo da Vinci.

Professor PPLI has landed, and repeats Leonardo da Vinci’s phrase, “Can’t beauty and utility be combined.” In a sense, Leonardo’s whole life was dedicated to these words. At Advanced Financial Solutions, Inc. we strive to follow in Leonardo’s footsteps in creating PPLI structures for wealthy families that give the best possible combination of privacy, tax savings, and compliance with tax authorities worldwide.

Let us first explore beauty. Beauty has many levels. At the highest level beauty embodies our finest aspirations. On a more mundane level, it comes closer to what makes us experience joy in our everyday lives.

Those of us who create Private Placement Life Insurance (PPLI) asset structures for wealthy clients can find beauty in a well-designed structure that is implemented successfully to achieve the aims of privacy, asset protection, and tax reduction. It is a type of architecture or engineering that uses laws, concepts, and ideas and blends them with the family dynamic and country specific challenges of each highly individual case.

George Santayana, the influential 20th century thinker, gives us his famous definition of beauty from The Sense of Beauty.

“We have now reached our definition of beauty, which, in the terms of our successive analysis and narrowing of the conception, is value positive, intrinsic, and objectified. Or, in less technical language, Beauty is pleasure regarded as the quality of a thing. … Beauty is a value, that is, it is not a perception of a matter of fact or of a relation: it is an emotion, an affection of our volitional and appreciative nature. An object cannot be beautiful if it can give pleasure to nobody: a beauty to which all men were forever indifferent is a contradiction in terms. … Beauty is therefore a positive value that is intrinsic; it is a pleasure.”

The PPLI Reality Check

We all know what one person or cultural might call lovely and beautiful does not always translate to another culture. We see this when we travel to countries that have cultures, traditions, and objects quite different than our own.

This idea mirrors the many different ways that PPLI is implemented throughout the world. What works in one country, or set of circumstances, does not work in another. Through research into the tax codes and insurance regulations of all the countries and entities involved must be commenced at the very beginning of each PPLI case that comes to us.

In Part 3 of our Concept Map we made no mention of the fairy who introduced the topic of beauty. Hans Christian Andersen, the great Danish writer of fairy tales tells us, “The most wonderful fairy tales grow out of that which is reality.”

This embodies the reverse of what happens at Advanced Financial Solutions, Inc. When you first come and tell us what you wish to gain by using our services, all the facts are somewhat a fairy tale, in that we don’t know if our type of structuring will work for you. Only after a detailed review of your situation, can we say with confidence, if it achieves the “reality” of a proper PPLI structure.

This detailed review, or reality check, is done at no cost to you. We wish to partner with you on a truly bespoke PPLI structure that achieves as many of the elements of Expanded Worldwide Planning, EWP as possible. These elements are privacy, asset protection, tax shield, succession planning, compliance simplifier, and trust substitute.

Details of the 953(d) Election

Now, as we promised you in Part 3, here is more detail on the 953(d) election. What is the difference between foreign and domestic insurance? In this context, we are speaking about U.S. based insurance companies as the domestic ones.

Domestic life insurance is state regulated in the U.S.. Policyholders and carriers can transact and negotiate only in the state where the carrier is licensed. The choice of investments is relatively limited, often in-house company funds only, with associated higher costs, sometimes much higher. Commissions can represent a fairly large proportion of the paid-in premium.

Foreign life insurance is regulated by the jurisdiction of the country of domicile. i.e., that countries’ financial regulator. Investment risk for variable policies is borne solely by the policyholder. The policyholder has much more flexible options, the cost of insurance is significantly much lower as the policyholder pays just the pure re-insurance cost, and brokers are paid a small percentage fee, similar to an asset management fee. In short, tax deferral remains assured, asset protection is tighter, privacy is greater, costs are lower, investment flexibility is greater and its fully compliant. At the private banking level, offshore insurance is a no-brainer.

The “953(d)” Insurance Company

The 953(d) 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 insurance company and policyholders.

As a U.S. taxpayer, the insurance company can invest in assets located anywhere in the world, including the U.S. and Europe. Through the policy structure, the policyholder and/or the beneficiaries can legally defer income tax and capital gains tax. Assets within the policy are paid to the beneficiaries as a tax free death benefit when the insured passes. Regardless of the location of those assets; U.S., Europe, Asia, the insurance company does not engage in trade and business in the U.S. and is not subject to state insurance laws.

Tax

The “953(d)” insurance company pays U.S. federal income tax on its worldwide income, it has therefore a US tax ID number, a “TIN”.  Moreover the policyholder is exempt from the 1% federal excise tax on premium payments as the company is treated as domestic, plus there is no state insurance premium tax.  There is no withholding tax on U.S. source dividend income. There is a U.S. DAC tax that must be paid, but it is lower than the 1% FET, currently it is 70 basis points.

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.

Legal & Compliance

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.

Combining Beauty and Utility

How did Leonardo combine beauty and utility? One need go no further than his notebooks. In her New Yorker review of Walter Isaacson’s biography of Leonardo da Vinci, “The Secret Lives of Leonardo da Vinci,” Claudia Roth Pierpont conveys beautifully the magic of Leonardo’s notebooks.

“These drawings are part of a vast treasury of texts and images, amounting to more than seven thousand surviving pages, now dispersed across several countries and known collectively as “Leonardo’s notebooks”—which is precisely what they were.

Private notebooks of all sizes, some carried about for quick sketches and on-the-spot observations, others used for long-term, exacting studies in geology, botany, and human anatomy, to specify just a few of the areas in which he posed fundamental questions, and reached answers that were often hundreds of years ahead of his time. Why is the sky blue? How does the heart function? What are the differences in air pressure above and beneath a bird’s wing, and how might this knowledge enable man to make a flying machine? Music, military engineering, astronomy. Fossils and the doubt they cast on the Biblical story of creation.

“Describe,” he instructs himself, “what sneezing is, what yawning is, the falling sickness, spasm, paralysis, shivering with cold, sweating, fatigue, hunger, sleep, thirst, lust.” He intended publication, but never got around to it; there was always something more to learn. In the following centuries, at least half the pages were lost. What survives is an unparalleled record of a human mind at work, as fearless and dogged as it was brilliant.”

We attempt to be fearless and dogged in pursuit of the perfect PPLI structure for you. Please let us know how we can serve you to this end. Thank you for your continued trust and support.

 

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

Michael Malloy-CLU-TEP

 

 

 

 

 

 

 

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PPLI for Wealthy International Families

– Including Wealthy U.S. Families

PPLI’s Beautiful Architecture

 Part 3

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 Our next few articles will comprise an in-depth look at the five main components of our PPLI Concept Map: Professor PPLI meets Leonardo da Vinci.

 What does beauty have to do with Private Placement Life Insurance (PPLI)? This is what we will explore in our article today. The tax compliant, conservative PPLI structuring techniques employed by Advanced Financial Solutions, Inc. have their own language of beauty which Leonardo da Vinci exemplified visually in his painting techniques.

We will also answer the question: why it is important for U.S. families, as well as wealthy international families that have a connection to the U.S., to use a life insurance company based in Bermuda, Barbados, or other offshore location that uses a 953(d) election? This PPLI structure offers these families the most advanced, yet fully compliant, asset structuring possibilities that are available. It is not a question of onshore vs. offshore, but what lies between as we will reveal in our article.

How is this connected to Leonardo da Vinci? It is connected to his painting technique called chairocurso or sfuamto. It came from his attention to the area between light and dark.

In the first panel of our Concept Map we explored the dark smoke that comes out of the backyard barbeque. In this article we will concentrate on the area that is between light and dark.

The Encylopedia of Fine Art gives us this definition of sfumato as:

In fine art, the term “sfumato” (derived from the Italian word fumo, meaning “smoke”) refers to the technique of oil painting which colours or tones are blended in such a subtle manner that they melt into one another without perceptible transitions, lines or edges. Leonardo da Vinci (1452-1519) himself described sfumato as a blending of colours “without lines or borders, in the manner of smoke.” It is as if a veil of smoke has been placed between the painting and the viewer, toning down the bright areas and lightening the dark ones, so as to produce a soft, imperceptible transition between the differing tones. Typically involving the use of a number of translucent glazes to create a gradual tonal spectrum from dark to light, Sfumato is classified as one of four painting modes of Renaissance art, the others being Unione, Cangiante, and Chiaroscuro.”

PPLI: The Unifying Structure

So what is between light and dark? In English, the word between comes from the Old English word betweonum, meaning “in the space which separates or midway.” What we call the region between light and dark is in reality a unifying factor. This will be seen more clearly shortly when we delineate the winning combination of entities called: The Unifying Structure.

Wouldn’t your planning possibilities increase many fold if you were considered a U.S. person just for federal income tax purposes, but not regulated by the U.S. Securities and Exchange (SEC)? Remember a PPLI death benefit is exempt from federal income tax purposes. The assets inside a properly structured PPLI policy are shielded from all taxation. If the policy is not under the regulation of the SEC, you can invest in almost any asset that can be held by a trust company:

  • Real estate
  • PFICs, PFHCs, CFCs
  • Closely held companies
  • Operating businesses, if structured properly
  • Image rights
  • Patents and trademarks
  • Stock portfolios
  • Cash
  • Art and collectibles

Yes, you do have the best of two worlds! If you are subject to the U.S. tax system, this combination of an insurance company based in Barbados, Bermuda, or similar jurisdiction that has a 953(d) election, is very much worth your consideration.

In our next article, Part 4, we will give you more detail on the 953(d) election. The Unifying Factor exists when the structure takes advantage of using the insurance regulations of a country like Barbados, Bermuda, or other country that has constructed its insurance code to accommodate the most advanced possibilities of PPLI. When this is combined with a 953(d) election one achieves The Unifying Factor.

Let us see how light and dark is seen from the standpoint of physics courtesy of Astroquizzical from Jillian Scudder, “Can light exist without darkness.” 

“To the great dismay of the great existentialist thinkers, scientifically speaking, this is not that difficult a question to tackle.

From a physics perspective, “light” is just a series of particles zooming through space, a little beam of radiation heading outwards in the cosmos. An individual particle of light usually doesn’t care whether it’s surrounded by lots of other photons, or whether it is off on its own in the universe, traveling a unique path.

Darkness is usually described simply as the absence of light; this description also works pretty well as a physical description. By this standard, “light” and “darkness” are just a binary toggle between “radiation” or “not radiation”.

The question here is asking if you can have only radiation – only light – and skip the “no radiation” part entirely. If you remove darkness, could you still have light? If you’re thinking about darkness and light in terms of a yes/no toggle, then this is perfectly possible. You just hold the toggle at “yes” at all times. The individual light particles won’t care that they’re not letting “not radiation” not have its times – they’re simply travelling forwards.

The ways that our universe produces light are also independent on a lack of light nearby. Stars form light as a byproduct of the incredible pressures at their centers, and are most often formed in clusters – with tens to hundreds of other stars forming nearby. 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.

There are two major reasons for darkness in the universe. The first is to be in shadow. The physical blocking of light by an object is an easy way to be in darkness. That’s all night is on Earth, after all – you’re in the shadow of the planet. The second is that the universe hasn’t existed for an infinite amount of time. If the universe had already existed for an infinite amount of time, our skies would be brilliant with light both day and night, as the light from every star in the universe streamed towards us, brightening our skies. In that case, the only sources of darkness would be the shadows. In that universe, perhaps we would be asking the question the other way around – is there any darkness without the light?”

Our last analogous article shows us light and dark in the realm of symbolism courtesy of the Pen & the Pad, “Dark & Light Symbolism in Literature,” by Diane Kampf.

“Symbolism is the use of imagery to emphasize deeper meanings and emotions. Two common symbols used in literature are darkness and light. Darkness is often used to convey negativity: evil, death or the unknown. Light is used to convey something positive: goodness, life or hope. Some of the most-studied literature contains symbolic uses of darkness and light.”

The Bible

It could be argued that the Bible serves as the basis for almost all themes found in Western literature. At the heart of biblical themes is the concept of good vs. evil. Goodness is often portrayed as some element of light. In Genesis, God creates light and calls it good. In the New Testament, Jesus himself is described as the light of the world. The visions of heaven described in the Revelation of John contain imagery of light.

Shakespeare

 Most academic studies in literature include at least one play by Shakespeare and dark and light symbolism abound in many of his works. In “Macbeth,” darkness is used a number of times to symbolize death. The famous line, “Out, out brief candle,” refers to Lady Macbeth’s suicide. Banquo’s torch is extinguished at the moment of his death. In “Romeo and Juliet,” light is used to show Juliet’s beauty and her dazzling influence on Romeo. When Romeo first sees Juliet, he says, “O, she doth teach the torches to burn bright!” (Act I, scene 5, line 45) Even when she dies, her brightness endures. When Romeo finds her in the tomb, he says,

“A grave? O, no, a lantern, slaughtered youth, For here lies Juliet, and her beauty makes This vault a feasting presence full of light ” (Act V, scene 3. lines 84-86)”

We opened our article discussing beauty–and we have not forgotten it. More on beauty in Part 4. We look forward to your comments, and assisting you with your clients that can benefit from PPLI structuring. Please let us know how we can help you!

 

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

Michael Malloy-CLU-TEP

 

 

 

 

 

 

 

#michaelmalloy #PPLI #privateplacement #lifeinsurance #advancedfinancialsolutions

 

 

 

 

 

Elegant Simplicity Revealed

The PPLI Insurance Code

 Part 2

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Our next few articles will comprise an in-depth look at the five main components of our PPLI Concept Map: Professor PPLI meets Leonardo da Vinci.

Although the basic framework of Private Placement Life Insurance (PPLI) policies is similar, each client situation is unique, and, therefore, calls for a new area of study. We use our past experience to bring the best possible outcome to a new set of circumstances.

Our past cases serve as a guide for new cases, but not as a rigid set of rules to follow. Previous cases at Advanced Financial Solutions, Inc. become a broad outline that guides us in the “undiscovered country” of the brand new PPLI challenge that presents itself.

Discovery is an endless process. As the Hungarian biochemist Albert Szent-Gyorgyi puts it,

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

One of our goals in these articles is to prepare the mind to accept such a simple tool to solve complex client issues.

Advisors tend to use the tools that they are familiar with. PPLI is not taught in law schools, so attorneys and other tax advisors must find it in the midst of their law practice. PPLI is also not well known by most insurance agents and brokers throughout the world.

Where did PPLI come from?

Here is a very brief account of its beginnings by Monroe Diefendord, Jr., and Gerald Nowotny, Private Placement Life Insurance, A Sophisticated Investment Solution for High Net Worth Investors.

“The advent of PPLI began around 1992-1993 following the use of similar products (without hedge funds) by large corporations. Al Block, a substantial corporate owned life insurance (COLI) producer, placed the first high net worth policies with CIGNA. The offshore PPLI marketplace developed in 1995-1996 around two separate and distinct themes. Wealthy families emigrating to the U.S. used PPLI and private variable deferred annuity (PPVA) contracts as part of their “in bound” tax planning. Tremont developed a small Bermuda-based life insurance company around the same time.

PPLI policies were created with this issue in mind, namely; “How does the high net worth investor combine the strong tax advantages of life insurance with a life insurance product that offers customized investment options for the sophisticated investor in a product that is institutionally priced?” 

Tax Code vs. Insurance Code

 What is simpler?  “Simplicity is the ultimate sophistication,” said Leonardo da Vinci. What we are calling the Insurance Code are the sections of the tax code that pertain to PPLI. They are for the most part sections 7702, 101, 817(h), and the various revenue rulings that address investor control: Rev. Rul. 77-85, 1977-1 C.B. 12; Rev. Rul. 82-54, 1982-1 C.B. 11; Rev. Rul. 2003-91; Rev. Rul. 2003-2 C.B. 347 (Jul. 24, 2003).

When you compare these sections and revenue rulings to the rest of the entire tax code that address the multiplicity of issues that face wealthy families, the conclusion is clear: what we are calling the Insurance Code is a vastly simpler body of knowledge. But simple is not simplistic, as a PPLI structure solves many planning issues in an elegant, conservative, and straightforward manner.

Sometimes we understand something by comparing it to its opposite. If a PPLI structure is a tool that gives assets the six principles of Expanded Worldwide Planning EWP–privacy, asset protection, tax shield, succession planning, compliance simplifier, trust substitute–what is its opposite? Let us consider a black hole, as just recently, scientists have been able to photograph it.

We further the analogy by positing–PPLI brings light to what can frequently be the complexity, read darkness, of clients’ worldwide assets. Darkness because these assets are usually not structured into a complete easy to understand structure.

Hannah Devlin of the Guardian gives us, “Black hole picture captured for first time in space breakthrough, Network of eight radio telescopes around the world records revolutionary image.

“Astronomers have captured the first image of a black hole, heralding a revolution in our understanding of the universe’s most enigmatic objects.

The picture shows a halo of dust and gas, tracing the outline of a colossal black hole, at the heart of the Messier 87 galaxy, 55m light years from Earth.

The black hole itself – a cosmic trapdoor from which neither light nor matter can escape – is unseeable. But the latest observations take astronomers right to its threshold for the first time, illuminating the event horizon beyond which all known physical laws collapse.

The breakthrough image was captured by the Event Horizon telescope (EHT), a network of eight radio telescopes spanning locations from Antarctica to Spain and Chile, in an effort involving more than 200 scientists.

Sheperd Doeleman, EHT director and Harvard University senior research fellow said: “Black holes are the most mysterious objects in the universe. We have seen what we thought was unseeable. We have taken a picture of a black hole.”

However, the observations do not yet reveal anything about the black hole’s inscrutable interior.

“The black hole is not the event horizon, it’s something inside. It could be something just inside the event horizon, an exotic object hovering just beneath the surface, or it could be a singularity at the centre … or a ring,” said Ziri Younsi. “It doesn’t yet give us an explanation of what’s going on inside.” Ziri Younsi, a member of the EHT collaboration who is based at University College London.”

The last paragraph is of particular interest in that Mr. Younsi is attempting to describe something that in our everyday world on earth could not exist–a black hole. Luckily we do have the vocabulary to describe what we are calling its opposite: a properly structured PPLI policy which delivers the six principles of EWP to wealthy clients worldwide.

We return to the world of tax with an introduction to the draft of an article by Emily Cauble, Professor of Law at DePaul University, on the subject of simplifying the U.S. tax code, “ Superficial Proxies for  Simplicity in Tax Law,” 53 U. Rich. L. Rev. 329 (2019). To continue with our theme of simplicity, as you will read, this is not so simple!

“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. Achieving genuine simplification — a reduction in costs faced by taxpayers at various stages in the tax planning, tax compliance, and tax enforcement process — often requires enacting more law not less. In addition, conceptualizing simplicity in simplistic terms can leave the public vulnerable to policies advanced under the guise of simplification that have real aims that are less innocuous.

A perennial example involves lawmakers proposing a reduction in the number of tax brackets under the heading of simplifying tax law. In reality, this change does very little, if anything, to simplify law in a meaningful sense, and its truer aim is to reduce progressivity in the tax code.

Although the tax legislation ultimately enacted in December 2017 did not change the number of brackets applicable to individual taxpayers, political discourse preceding its enactment once again touted a reduction in the number of tax brackets as a simplifying measure.”

If you wish to keep things simple and at the same time achieve results not possible with other structuring methods, please contact us today for a free initial consultation.

 

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

Michael Malloy-CLU-TEP

 

 

 

 

 

 

 

#michaelmalloy #PPLI #privateplacement #lifeinsurance #advancedfinancialsolutions