Excellent Recognition – EWP

We have not achieved the recognition of the Strahov Library in Prague, but we invite you to do an internet search on expanded worldwide planning.” This concept that we have championed for years is finally receiving the attention it deserves. Wealthy families around the world are now receiving the six principles of Expanded Worldwide Planning (EWP) through properly designed Private Placement Life Insurance (PPLI) policies.

We welcome your comments and questions.  All the best to you and your families in these trying times. Yes, it is difficult, but, as always, new opportunities are created in the midst of uncertainty and hardship.

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

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Expanded Worldwide Planning-EWP & Privacy

Private Placement Life Insurance (PPLI) in Action

Part 1: Privacy

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The universality of Expanded Worldwide Planning (EWP) is not to be denied. This is objectified by Wikipedia. In the first sentence of their page on International Tax Planning, Expanded Worldwide Planning (EWP) is featured.
We are taking a cue from Wikipedia. Over the next few weeks, we will feature one of the six principles of Expanded Worldwide Planning (EWP). The six principles are: privacy, asset protection, tax shield, succession planning, compliance simplifier, and trust substitute.
Today we feature PRIVACY. Privacy is a key element. With FATCA, CRS, and Registers of Beneficial Ownership our clients are looking for ways to keep their affairs private, and still be compliant with tax authorities worldwide. But as you know, it is a cat and mouse game that takes study and constant attention to detail. As you can see from our image, we don’t quite know who is winning.

“Behold, I set before you this day a blessing and a curse….” (Deuteronomy 11:26, King James Bible.) This is an apt phrase to describe the context of privacy today, where with a touch of a keystroke you can send megabytes of data around the world in an instant.
What was once private and personal becomes public and accessible to all. Computers and other electronic devices are part of our lives, whatever our opinion of them. These devices can add convenience and efficiency to our lives, but at a cost.

Electronic Privacy?
This thought is expressed by Andrew Grove, co-founder and former CEO of Intel Corporation. Mr. Grove’s thoughts on internet privacy appear on the Privacy page of Wikipedia:

“Privacy is one of the biggest problems in this new electronic age. At the heart of the Internet culture is a force that wants to find out everything about you. And once it has found out everything about you and two hundred million others, that’s a very valuable asset, and people will be tempted to trade and do commerce with that asset. This wasn’t the information that people were thinking of when they called this the information age.”

Expanded Worldwide Planning (EWP) has the six principles that matter most to wealthy families throughout the world today–no matter where they are located. They are the building blocks of any successful asset structure.

The ancient Greeks called man, “a political animal.” In today’s world almost all so-called facts are politicized. It is no different with privacy. Certain groups call the journalistic authors of the Panama Papers and the Paradise Papers heros of a free press. Others say that these same journalists were thieves, who unlawfully stold private financial data. Whatever your opinion, these events did happen, and the targets were most decidedly wealthy families throughout the world.

How does the privacy afforded by a properly structured PPLI policy protect the families whose financial information was published for the entire world to see?
The privacy principle of Expanded Worldwide Planning (EWP) accomplishes its objective in several key ways:

  • Upon transfer into the PPLI policy, the insurance company becomes the beneficial owner of all the assets in the policy;
  • If there is reporting to a tax authority for the asset structure, only one number is reported. This is the total cash value of all the assets in the PPLI policy. The individual assets are not reported;
  • The bank account that is usually opened in connection with a PPLI policy is opened in the name of the insurance company, not the policyowner. The policyowner has full access to the funds in the bank account in accordance with the assets inside the policy.

The Privacy Paradox
In connection to privacy, there is a concept called the privacy paradox that was first discussed by Bedrick, Lerner, and Whitehead, “The privacy paradox: Introduction, News Media and the Law.” We quote below from the Wikipedia Privacy page:

“The privacy paradox is a phenomenon in which online users state that they are concerned about their privacy but behave as if they were not. While this term was coined as early as 1998, it wasn’t used in its current popular sense until the year 2000.”

The authors go onto to explain this in more detail:

“Some researchers believe that decision making takes place on an irrational level, especially when it comes to mobile computing. Mobile applications are built up in a way that decision making is fast. Restricting one’s profile on social networks is the easiest way to protect against privacy threats and security intrusions. However, such protection measures are not easily accessible while downloading and installing apps.”

There is also another type of Privacy Paradox pertinent to Expanded Worldwide Planning (EWP) in the reporting of data breaches and news reporting on wealthy families. This is aptly put by Filippo Noseda of the Mischon de Reya law firm in London:

“It is somewhat curious that serious newspapers who have been covering both the private banking scandals and the erosion of privacy seem unable to make the connection between data protection on the one hand, and the Common Reporting Standard (CRS) and beneficial ownership registers on the other.”

Mr. Noseda also draws our attention to published material by The European Data Protection Supervisor (EDPS) where he questions the OECD’s goal of total financial transparency.
Mr. Noseda writes:

“As if they were living on planet Europa rather than in Europe, the European Parliament, the Organization for Economic Co-Operation and Development (OECD), and politicians show complete disregard for the warnings raised by their own data protection bodies and instead appear hell-bent on introducing a system of total transparency.”

We have grown accustomed to the idea that transparency is a good thing, something that supports the common good. Like many concepts, if taken to an extreme, it becomes its opposite. A weapon in the hands of governments hungry for wealthy citizens’ tax dollars. As proponents of Expanded Worldwide Planning (EWP), we must question this overzealous approach to tax collection.

The History of Privacy
Let us end with some general historical information on privacy, and how Expanded Worldwide Planning (EWP) and PPLI can further the aims of wealthy families seeking increased privacy, asset protection, and tax efficiency.
We quote two eye-opening passages by Greg Ferenstein’s “The Birth and Death of Privacy: 3,000 Years of History…,” courtesy of Medium:

“Privacy, as it is conventionally understood, is only 150 years old. Most humans living throughout history had little concept of privacy in their tiny communities. Sex, breastfeeding, and bathings were shamelessly performed in front of friends and families.”
“Privacy-conscious citizens did find more traction with what would become perhaps America’s first privacy law, the 1710 Post Office Act, which banned sorting through the mail by postal employees.”

This last quote seems quaint in light of the large-scale, present-day concerns of unauthorized data sharing by social media sites.

Expanded Worldwide Planning (EWP) and PPLI are employed by our firm Advanced Financial Solutions, Inc. to not only give you enhanced privacy, we also keep you compliant with tax authorities worldwide. Our firm can be confident of our success, because PPLI and Expanded Worldwide Planning (EWP) asset structuring greatly simplifies the process, and in addition, gives you the privacy that you seek.
We invite you to take advantage of our services, and would enjoy hearing your comments and questions about the topic of privacy. Please contact us today for a no-obligation, introductory consultation.

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

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Q & A – Ancient Wisdom and 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

 

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Socrates and King Lear Teach Us a Lesson

Ancient Wisdom and PPLI

Section 3, Part 4

In this Part of the book, Socrates and Shakespeare’s King Lear are mentioned. Professor PPLI, please tell us more about how they pertain to PPLI?

In this Part of the book, we used the death of Socrates and the wanderings of King Lear late in his life as examples of highly charged types of exile. Socrates was put to death by state officials in Athens. King Lear was left to wander in his own country after political intrigue forced him out.

Wealthy families are not immune to dramatic forms of exile, sometimes being forced to flee their own country for political and economic reasons. At Advanced Financial Solutions, Inc., our goal is to structure your assets into a well-organized arrangement that gives you the stability to withstand disruptive cross border changes.

This is accomplished through the conservative vehicle of life insurance that is recognized in almost all jurisdictions throughout the world as a standard financial planning vehicle. Privacy, asset protection, and tax efficiency are the hallmarks of the structures that we provide for wealthy families throughout the world.

Profession PPLI, how does Socrates’s philosophy teach you to construct better PPLI international asset structures?

Achieving the ideal international asset structure requires us to be careful listeners. We zealously guard against presenting you with a preconceived plan of our own making. In the end, the plan must be a combination of your aims and desires and our knowledge of the laws and regulations that are pertinent to the plan. What worked for one family may not be a fit for you, even though the outward facts are similar.

How can we be certain that we adhere to careful listening? One method is to follow Socrates’s famous quote: “I only know that I know nothing.” Garth Kemerling’s insightful commentary in the Great Philosophers series is helpful here:

“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.”

Professor PPLI, why would a citizen of a country wish to purchase a life insurance policy from a company outside the borders of their country?

The majority of jurisdictions in the world allow their citizens to purchase life insurance from companies outside their borders. PPLI serves this need very well.

For reasons to purchase a foreign life insurance policy, you need look no further than the six principles of Expanded Worldwide Planning (EWP):

  • Privacy
  • Asset protection
  • Succession Planning
  • Tax Shield
  • Compliance simplifier
  • Trust substitute

Usually several, if not the majority of these six principles, are not available in your own country. Why restrict your international asset planning to just the meager offerings that are available. Expand your vision to include the full palette of EWP. We quote the definitions of the six principles from the Wikipedia page, “International Tax Planning:”

Privacy

EWP gives privacy and compliance with tax laws. It also enhances protection from data breach and strengthens family security. EWP 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.

Asset protection

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

Succession planning

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

Tax shield

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

Compliance simplifier

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

Trust substitute

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

Please let us know how we can put these six principles of EWP to work for you. Contact us for a no-charge initial consultation that will be tailored to your own individual aims and desires.

 

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

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Q & A – Nothing Is Impossible

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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Nothing Is Impossible

PPLI: Under Higher Laws

 Section 3, Part 3

 

Professor PPLI, attitudes toward a subject are a powerful force in how people perceive the subject. These attitudes are also sometimes hard to change. How does this relate to PPLI?

If you study the history of science, you can readily see how once a long held belief or attitude is changed, it becomes a new paradigm that awaits another future paradigm shift. What was thought impossible becomes possible.

A similar phenomenon exists in sports with world records. Take Roger Bannister breaking the four minute mile record. In a sense, once the barrier is broken, others are given permission to accomplish the same feat. Again, the impossible becomes possible.

In the world of PPLI, I see a paradigm shift coming for professional trustees’ attitudes towards PPLI asset structuring. Professional trustees can be distrustful at first hearing of these structures, because they think they will lose control of the assets. Exactly the opposite is the case.

When assets are placed in a PPLI structure, the insurance company takes over the administration of these assets, but leaves the trustee in ultimate control. This relieves the trustee of many routine tasks, but the trustee retains their role as the ultimate decision maker, since they are the owner of the policy. They are even free to switch insurance companies, if the administration of the assets is not to their liking.

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 some 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.”

Lastly, assets within a PPLI structure are frequently held for the long term, usually until the death of the insured person, thus, the trustee can be assured of controlling the assets for a long time period.

The title of this section is “Nothing Is Impossible.” This is a big statement. What relevance does this have to PPLI?

To solve issues in the world of international asset structuring, it is sometimes necessary to ask the simple, yet sometimes profound, questions that come from children: why is the sky blue? And where was I before I was born?

At Advanced Financial Solutions, Inc., we ask ourselves one simple question at the beginning of each client engagement:

How can we achieve the maximum amount of tax efficiency, asset protection, and privacy for this family?

Our picture in the book is telling for the answer to this question. Nobody has told the mountain goats in this picture that what they are doing is extremely dangerous and they can fall to their peril at any point.

Our task at Advanced Financial Solutions, Inc. is not so dramatic, but we do endeavor to achieve what might seem impossible by conventional structuring methods. How do we accomplish this? By engaging you with simple questions that bring about the answer to the important question posited above.

Ironically, our international PPLI structuring techniques are usually far more conservative than the complex trust structures that clients frequently bring us to review. Sometimes they have spent weeks pondering over this overly complex structure and still do not understand them.

We treat each of our cases as a blank canvas that confronts each painter at the beginning of a painting project. Our goal is to paint, read structure, a picture that gives a family all they desire in the realm of tax efficiency, asset protection, and privacy.

Professor PPLI, how is PPLI similar to the popular phrase, “to hide something in plain sight?”

The key to this question lies in two words–life insurance. Most all life insurance policies in most jurisdictions throughout the world offer all or some of these benefits:

  • Tax-deferred growth of internal cash value
  • Tax-free death benefit
  • No capital gains taxes
  • No income taxes
  • Ability to access Cash Value through tax-free loans
  • Ability to manage or mitigate estate taxes

PPLI now adds these benefits:

  • Invest in almost any asset class
  • Increased asset protection as insurance company becomes beneficial owner of assets in the policy
  • Simplified reporting and privacy as only total cash value is reported
  • Policy can hold CFC’s and PFIC assets on a tax-deferred basis
  • Excellent vehicle to hold real estate
  • Provided a stable, globally recognized structure for tax authorities

Most attorneys, asset managers, trustees, and accountants have received no formal education in PPLI international asset structuring, and their professional societies have scant knowledge on the subject. After they drop their frequent preconceived prejudices against life insurance, and study the subject of variable life insurance, and the tax code that supports it, they usually have two reactions.

One, is they are astounded that they have not been using this simple and conservative method from the beginning of their practice. Or, two, they think it is too good to be true and reject it, because it does not conform to the methods that most of their peers use in the field of international asset structuring.

At Advanced Financial Solutions, Inc. we encourage you to take the path of the first reaction. To that end, we appreciate your questions and comments. Please give us your thoughts on PPLI international asset structuring.

 

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

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Q & A – How Can Nothing Exist?

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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How Can Nothing Exist?

The Zen of PPLI

Section 3, Part 2

Professor PPLI, in this Part of the book, you compare the contradiction of the meaning of the word nothing to how PPLI is incorrectly perceived by some people. Please tell us more.

 The contradiction arises, in part, because of a lack of knowledge about the origins of PPLI, and how it was initially conceived. PPLI was born in the U.S. in the 1980s to allow top executives at major corporations the ability to invest in multiple asset classes within their pension plans. In the 1990s, it was adopted by wealthy families to fulfill the same need, especially for international families with assets in several jurisdictions throughout the world.

The original use of PPLI very soon spawned a retail version, the Variable Universal Life (VUL) insurance policy. Compared to the original, open architecture version of PPLI described above, the retail version of the VUL can be described as life insurance with a selection of mutual funds from which the client chooses. The choice ideally corresponds to the risk tolerance of the policyowner.

All VUL insurance policies provide tax deferral.  The retail version and the original version from the 1980s, which we will call International PPLI. Whatever the asset inside the policy, be it a mutual fund, stock portfolio, yacht, operating business, or alternative investment, there is tax deferral.

Any gain on these assets passes as a tax-free death benefit to the designated beneficiary on the policy. Depending on the policy design, this gain can be accessed through policy loans. The principal, or original value of these assets, can be withdrawn from the policy too. The type of withdrawal is determined by the policy design that the policyowner chooses.

For those who are just familiar with the retail version of the VUL, and the slightly expanded asset offering of what is mostly marketed as PPLI in the U.S., the structuring possibilities of the true International PPLI seem like a contradiction. Much like one of the definitions of the word nothing, “something that does not exist.” It does not exist for them, because they have not taken the time and energy to explore the many structuring possibilities of International PPLI.

Professor PPLI, your comments in the first question remind me of the famous quote by Benjamin Franklin, “Our new Constitution is now established, and has an appearance that promises permanency; but in this world nothing can be said to be certain, except death and taxes.” How does  PPLI addresses both death and taxes.

Like most aspects of PPLI, death and taxes are dealt with in a bespoke manner. The death benefit can be tailored to the estate planning needs of the family. Frequently, policies are designed with the least death benefit possible, as the policy serves more as asset structuring tool than as a vehicle to pass a death benefit to the next generation.

The timing of the liquidity event that the death benefit produces can also be somewhat calculated. PPLI policies support multiple insured lives. Also, it is possible to insure a younger family member, if the family wishes the liquidity event to be extended, and an older family member, if the death benefit is needed at an earlier date.

The topic of the tax aspects of PPLI is a large one. As an overview, here is a quote from the Tax Management International Journal by members of the

Giordani, Swanger, Ripp & Phillips law firm of Austin, Texas:

“Life insurance is a powerful planning tool due to its favorable treatment under the Code. While under §61(a)(10), gross income includes income from life insurance and endowment contracts, other Code sections — as discussed below — exclude substantial life insurance–related sums from the gross income of policyholders and beneficiaries alike.”

The favorable tax treatment mentioned above in the U.S. tax code is, for the most part, repeated in tax codes of most jurisdictions throughout the world.

Depending on the policy design and assets in the policy, this is a short list of possible tax advantages of using a PPLI policy:

–allow a tax-favored CFC investment;

–eliminate FIRPTA withholding on a U.S. real estate investment;

–avoid subpart F unfavorable tax issues;

–eliminate tax on dividend income;

–pass assets to future generations tax-free;

–eliminate capital gain and income tax;

–eliminate estate tax.

Particularly in art, Zen Buddhism is known for its simplicity. A picture of a famous Zen rock garden is shown in this Part. Professor PPLI, tell us how this relates to PPLI.

 The moving parts of asset structuring are greatly reduced for international families when they employ International PPLI. The three elements of any type of life insurance policy are the same for a PPLI policy: owner, insured, and beneficiary. When assets are placed in a policy, they become the cash value of the policy. The insurance company is now the beneficial owner of these assets–no matter what asset class or jurisdiction of the asset.

If there is a tax reporting obligation for the policy, what is reported is just one number. This one number is the total of the cash value of the policy, not any of the individual assets. Even though this is the situation for tax reporting, the assets are held by the insurance company in separate accounts in the name of the policyowner.

These assets are not part of the general account assets of the insurance company. If the company was to be liquidated or become insolvent, the assets would be transferred back to the policyowner.  This turns complexity into simplicity, similar to Zen art.

You might think that an asset structure that can deliver the six principles of EWP would be complex. Let us review the six principles: privacy, asset protection, tax shield, succession planning, compliance simplifier, and trust substitute.

The internal structure inside the policy can become somewhat complex due to the asset classes and jurisdictions involved, but it does add complexity for the international family, as the insurance company takes over the administration of these assets. This also makes life easier for the trustee of the assets. The trustee, as policyowner, still has the ultimate authority, but is relieved of much of the daily administrative functions by the insurance company. Complexity has become simplicity.

We invite you to explore the details of PPLI. Call Advanced Financial Solutions, Inc. today! We offer a no-charge initial consultation.

 

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

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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

Michael Malloy-CLU-TEP

 

 

 

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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

Michael Malloy-CLU-TEP

 

 

 

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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

Michael Malloy-CLU-TEP

 

 

 

#michaelmalloy #PPLI #privateplacement #lifeinsurance #advancedfinancialsolutions