Resolving the Contradiction of Changeless Change

PPLI Can Do It

Resolving the Contradiction of Changeless Change

Can you use a well-established product as a process for the structuring of the worldwide assets of wealthy international families? Yes, is the resounding response from Private Placement Life Insurance (PPLI).

PPLI is both a standard product and a process, and hence its versatility, and at the same time, its stability. PPLI gives a structural framework to the diverse holdings of wealthy international families. Because PPLI is a product and common in the world’s tax and legal frameworks, there is a large body of laws and regulations that give advisors–a road map to follow.

This allows PPLI to give the assets of wealthy international families full privacy and tax savings, and at the same time, compliance with the world’s tax authorities.

To explore the concept of change, our article gives you an example from the world of self-driving automobiles.   We also share with you a legal challenge to the OECD’s CRS program.

Changeless Change is also a good description of China. This ancient civilization has transformed itself into a 21st century nation in only a few short years. Shanghai, China, is the venue of the video, “Our Journey Together” Part III, of my presentation at the 5th annual FOA Forum that we offer you below.

PPLI is also known as Private Placement Variable Universal Life Insurance (PPVUL). Its name speaks to the internal workings of the product. It is both life insurance and a home for investments. This is a definition from Cornell University Law School’s Wex Legal Dictionary:

“A form of whole life insurance that combines aspects of universal life insurance and variable life insurance and provides for a death benefit and accrues cash value on a tax-deferred basis. Variable universal life insurance (“VUL”) policies allow for flexibility in premiums, death benefits, and investment options.”

So how does a product become a process, a structuring tool? PPLI is a type of PPVUL, but with very unique characteristics. These are the characteristics that allow clients to accomplish so many valuable elements in the single structure:

Open Investment Universe–Almost any asset that can be held by a trust company can become part of a PPLI policy. With proper structuring even operating businesses can be included.

Simplified Reporting–The assets inside the policy are held in separate accounts for the policyholder, meaning that they are not part of the general assets of the insurance company. But for reporting purposes, the insurance company becomes the beneficial owner of the assets.

Asset Protection–The insurance policy adds another layer of asset protection in the structure. The domicile of the insurance companies also is a help here, as they are located in jurisdictions that have strong asset protection laws, like Bermuda and Barbados.

Low Fees/Commissions–Most often there is a 1% set-up fee. And the ongoing fees are frequently less than 1% of the assets inside the policy. This contrasts sharply to the large first year commissions charged by Universal Life and Whole Life policies.

Now for our examples of how change plays out in the world today. Self-driving cars and the OECD’s CRS are concepts that did not exist a few years ago. To make their way into our everyday world is not an easy task. They both have something to offer, but they must fit into other structures that have existed for longer periods. They are like new pieces of a jigsaw puzzle introduced when the puzzle seems to be complete.

Self-driving cars Encounter Political Roadblocks” by Mike Colias and Tim Higgins of the Wall Street Journal, give us a glimpse into the process of integrating technological change into the world.

“Auto makers and other companies racing to commercialize self-driving car technology are facing pushback from local politicians, complicating their plans to bring real-world testing to more U.S. cities.

In New York City, General Motors Co. has put on hold plans to begin testing in Manhattan because Mayor Bill de Blasio has expressed concerns about the technology’s safety, according to people familiar with the matter. GM said last year it would be the first company to start driverless-car testing in the city, starting in early 2018.

In Chicago, the city council’s transportation-committee chairman has vowed to block self-driving cars from operating in the nation’s third-largest metropolis, citing safety concerns and the potential for displacing taxi drivers and other jobs.

Even in Pittsburgh, a hotbed for autonomous-vehicle research and development, city officials have recently adopted more stringent requirements, demanding that driverless-car developers detail how a vehicle’s safety system works before granting permission to test on public roads.

A fatal crash in March, when an Uber Technologies Inc. self-driving test car stuck and killed a pedestrian in Tempe, Ariz., has fueled concerns over putting such prototypes on public roads, especially in big cities that tend to be more crowded, transportation officials say. Also, many city leaders say they want companies to show that the technology will provide wider social benefits, such as reducing congestion and helping low-income residents get around.

“It’s a lot of local politics that are difficult to navigate,” said Bradley Tusk, founder of Tusk Ventures, which works with startups on regulations and other political issues. “These are hard issues. You’re talking about small spaces that are very congested.

Meanwhile, a Senate bill that aims to establish nationwide regulations for self-driving cars has stalled in Congress. Without federal direction, cities and states are left to act on their own, creating a patchwork of rules and red tape for companies plowing billions into the technology and hoping to eventually turn their testing into profitable ventures.

GM Chief Executive Mary Barra has called self-driving vehicles “the biggest opportunity since the creation of the internet.” GM, Alphabet Inc.’s self-driving car unit Waymo LLC and others are betting these services will create a market for customers wanting to hail a robotic car much like they do an Uber or Lyft Inc. ride. Some analysts estimate that market could eventually be valued at trillions of dollars.

GM and Waymo are among companies that have been testing in a handful of U.S. communities for years and are getting closer to launching services to paying customers. GM plans to introduce a new robot-taxi service next year, likely in San Francisco, where the auto maker has done the bulk of its testing. Waymo said Nov. 13 that it will begin offering rides in self-driving cars to Phoenix-area customers in the coming weeks.

Companies say that in some cities, they are working closely with officials to assuage concerns, but much more work is needed before a wider rollout is possible.”

Barney Thompson of the Financial Times, shares with us “EU National Challenges HMRC Over New Data Sharing Rules.” CRS aims to assist governments in the fair collection of taxes, but are data protection safeguards in place to protect our rights to privacy?

“An EU national is challenging HM Revenue & Customs over new rules that require tax authorities around the world to automatically exchange information on millions of their citizens who live abroad.”

In a complaint to the UK’s data protection regulator, the EU citizen said the common reporting standard — a key measure against tax evasion developed by international experts that is now being gradually introduced by more than 100 countries — made her personal information vulnerable to cyber hacking or an accidental leak.

However, campaigners have defended the measure, saying it was an important tool in the fight against tax avoidance and evasion, notably through offshore financial centers.

The EU citizen who has made the complaint about the common reporting standard — who does not want to be identified — is currently domiciled in Italy but is described as having “a very international background”.

She lived in the UK for several years and was tax resident in Britain, acquiring a unique taxpayer reference and a national insurance number. She also still has a UK bank account with a deposit of £4,000.

Even with this relatively small amount, her bank is required under the common reporting standard to disclose certain information to the HMRC, including the account number, balance, her name, date of birth and tax number.

In turn, HMRC must pass on the information to its counterpart in Italy, which it is due to do in September.

Exchange of information would be automatic

In theory, any UK bank account holder living in another country that abides by the common reporting standard falls under the scope of its rules.

Within the EU, almost 19m people are estimated to live in a different member state to the one in which they were born.

Like the US foreign account tax compliance act, on which it is based, the common reporting standard was designed as a way to counter global tax evasion by making the exchange of information between countries automatic rather than have tax bodies request it if they suspect wrongdoing.

The standard was developed by the Organisation for Economic Cooperation and Development, the Paris-based international body that co-ordinates co-operation between different tax jurisdictions.

Several countries have poor data security

In her complaint against the common reporting standard to the UK Information Commissioner’s Office, the EU citizen said the exchange of information required by the rules will expose her to “a disproportionate risk of data loss and potentially hacking”.

She added: “This risk has crystallised recently in light of incidents in which HMRC has lost data concerning UK taxpayers and recent data breaches concerning UK banks.”

Her complaint cited how HMRC had lost the personal records of 25m taxpayers in 2007, as well as a media report in 2017 outlining how the tax authority’s website was vulnerable to cyber attacks. HMRC subsequently took action to fix the weaknesses.

Among the countries that have signed up to the common reporting standard are several with poor data security records, added the woman’s complaint.

Furthermore, data leaks such as during the TSB online banking failure this year and attempts by cybercriminals to hack the online tax details of British taxpayers illustrated the dangers around the mass exchange of sensitive personal information, it said.

As a result, the common reporting standard infringed the new EU-wide General Data Protection Regulation, which came into force in May, as well as European human rights laws, said the complaint.

Rules risk ‘identity theft on a grand scale’

The Information Commissioner’s Office has the power to impose temporary or permanent limits on the processing of personal data if it decides that GDPR rules are being infringed.

The office said:

“We have received a complaint relating to HMRC and the common reporting standard and will be looking into the details.”

Filippo Noseda, a partner at law firm Mishcon de Reya, who is acting for the EU national, said the data breach risks involved in the standard “could lead to identity theft on a grand scale”.

Mr Noseda acknowledged that rich clients of law firms would appreciate not having their tax details and activities shared between authorities.

But he added:

“The endgame is not to go back to banking secrecy. We need to find a system that is balanced.”

John Christensen, director of the Tax Justice Network, a campaign group, defended the common reporting standard, saying it needed to be broad to deter individuals from using offshore structures to avoid and evade tax.

“The [standard] has given the tax authorities the information they previously did not have access to, which enables them to pinpoint where tax evasion is happening,” he added.

 

“Tax avoidance and evasion are . . . deliberately and purposefully depriving tax authorities of finances.”

 

HMRC declined to discuss the EU citizen’s case but added:

“HMRC shares some personal data with overseas tax authorities to ensure that the right tax is being paid. HMRC only ever shares information when it’s entirely lawful to do so. This includes complying with applicable GDPR requirements.”

 

Advanced Financial Solutions, Inc. uses a stable and well-accepted financial concept, life insurance, to structure the assets of wealthy international families. Our main tool, PPLI, is a versatile and underutilized form of life insurance that gives excellent structuring results. Please join our list of very satisfied clients by contacting us today about your worldwide assets. We are here to bring you the right kind of change that is disruptive in a positive way.

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

 

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How to Climb the Mountain of Happiness

PPLI Provides Steps Up the Mountain

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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

 

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Michael Malloy, CLU TEP in Motion

Travel Defined

Since our founder and chief advisor, Michael Malloy, CLU, TEP, is traveling, we will feature him this week, and a little about his trip to Singapore and Shanghai. First, let us explore the concept of travel. What are the different forms of travel that we experience in our lives?

The obvious one is going from A to B, but there are other forms of travel. Intellectual travel is paramount to working with wealthy international families. Researching and studying the different structuring options that make themselves available when the tax laws of different countries change is an ongoing form of intellectual travel for Advanced Financial Solutions, Inc.  Michael’s CLU and TEP designations are another form of intellectual travel.

According to Investopedia,

“A chartered life underwriter (CLU) is a professional designation for individuals who wish to specialize in life insurance and estate planning. Individuals must complete five core courses and three elective courses, in addition to successfully passing either 100-question, two-hour examinations in order to receive the designation.”

Wikipedia says,

“The Society of Trust and Estate Practitioners (STEP) was founded by George Tasker in 1991 and is the international professional body for advisors who specialize in inheritance and succession.”

The TEP designation is awarded to advisors who have significant involvement at a specialist level with one or more of the following: planning, creation, management of and accounting for trusts and estates, executorship administration and related taxes.

Now onto Singapore and Shanghai with Michael Malloy, CLU TEP. Michael’s time in Singapore by taken up with meetings with advisors exploring ways to use Private Placement Life Insurance (PPLI) structures for Far Eastern clients. The key six elements of Expanded Worldwide Planning (EWP) resonate well in these jurisdictions. Singapore is a truly international financial center for Indonesia, Malaysia, and the PRC.

With the implementation of The Common Reporting Standard (CRS) in the People’s Republic of China (PRC) clients are looking for ways to keep their financial affairs private and still be compliant with tax authorities. Using PPLI is seen as an excellent way to achieve this aim.  In 2019 there will also be new tax laws implemented in the PRC that impact client structures in BVI, the Cayman Islands, and other popular offshore destinations for PRC clients. In discussions with advisors in the PRC, advisors agreed that PPLI can be a valuable tool to assist clients in this area.

Intellectual travel and worldwide travel are both parts of Michael Malloy, CLU TEP’s world. Both are in service to our clients in keeping their affairs as private as possible and be compliant with the world’s tax authorities.

We invite you to explore how PPLI and EWP can greatly enhance the value of your assets. Please contact us for a free consultation to find out for yourself.

Read more about Michael Malloy.

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Positive and Beneficial Influence

PPLI Achieves Both

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

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

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

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

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

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

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

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

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

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

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

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

 

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

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

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

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

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

 

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

 

 

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The Art of War in Action

Achieve Stealth Victory with PPLI

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

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

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

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

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

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

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

Hiding in Plain Sight

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

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

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

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

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

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

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

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

 

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

 

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PPLI Hits the Mainstream with Bloomberg

EWP: A Giant Structuring Tool

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

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

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

More on Product vs. Structure

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

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

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

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

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

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

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

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

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

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Privacy Flows with EWP and PPLI

GO WITH THE FLOW

“Go with the flow” can have several meanings, and oddly enough, in the context of Expanded Worldwide Planning (EWP) it can pertain to privacy.  As our firm specializes in structuring for international clients using Private Placement Life Insurance (PPLI), we will discuss two recent news articles and how they relate to securing privacy, as well as full compliance, for families involved in international tax planning. The articles are interesting in themselves, and we have used them to make a few points related to our topic.

Because PPLI is issued under a variable universal life insurance contract, the insurance company becomes the beneficial owner of the assets inside the policy.  When reporting to the tax authorities of the jurisdictions involved with the policy, the insurance company becomes the owner of the assets inside the policy, even though the assets are held in separate accounts for the benefit of the owner of the assets.  It is the goal of EWP to secure as much privacy for clients that is allowable under law, and still be fully compliant with tax authorities worldwide.

Now back to our new articles and “going with the flow.” In a certain sense, the flow of information and the flow of wealth is akin to plumbing.  As long as things flow, in the direction intended there is not a problem.  When things begin to backup or flow in the wrong direction, we encounter problems.

Our first news article discusses the movement of families within the U.S. to states with no or little state income tax, and how the states that have high state income taxes like New York and California are unprepared for the loss of these tax dollars. The point is also made in the article that the states like Florida and Texas that are receiving the migrating families are also unprepared for the influx of new people in their states. In our analogy, we have a situation here where things are flowing in a direction that is not intended.

Here are a few of the salient points courtesy  of the Wall Street Journal by Arthur B. Laffer and Stephen Moore, “So Long, California. Sayonara, New York.” 

“Since 2007 Texas and Florida (with no income tax) have gained 1.4 million and 850,000 residents, respectively, from other states. California and New York have jointly lost more than 2.2 million.”

 

“As the migration speeds up, it will raise real-estate values in low-tax states and hurt them in high-tax states.”

 

“Despite its shrinking tax base, New York spends nearly twice as much on state and local government per person ($16,000) as does economically booming Tennessee ($9,000).”

Our second news article is about the flow of information, and a possible unintended consequence of regulating it. Perhaps the pipes have been put at the wrong angles, or in the wrong place?

Again, from the Wall Street Journal by Steve Rosenbush, “The Morning Download: Europe’s New Privacy Rule, in Unexpected Twist, Helps Facebook, Google.”

The main point of the article is contained in these two quotes:

“The EU will begin enforcing the General Data Protection Regulation, “which in many cases require companies to obtain affirmative consent to use European residents’ personal information,” the Journal’s Sam Schechner and Nick Kostov report

 

“Google and Facebook, using their scale and sophistication, “are applying a relatively strict interpretation of the new law, competitors say—setting an industry standard that is hard for smaller firms to meet,” the Journal reports.”

How does our discussion of “go with the flow” pertain to the benefits of using EWP and a properly constructed PPLI policy to provide privacy?  In the first article, the families were moving to save significant tax dollars.  Inside the privacy protection of PPLI, there is a similar movement, as the assets inside the policy, if structured correctly, are in a tax-free environment.  Like the families in question, they have gone from a high tax situation to a no tax situation–if they moved to Florida and Texas where there is no state income tax.

The new privacy regulations in the second article that favor companies like Google and Facebook show how laws change over time, and when the laws change, it affects the companies subject to the regulation.  One favorable element of using PPLI for structuring is that it is subject to the insurance regulations of the tax authorities involved in the policy structure.  Insurance regulation tends to be much more simple and straightforward than tax codes, and this greatly favors families in their planning.

The insurance codes in most countries are also less subject to change than the tax codes. Insurance is also considered a vehicle that benefits the whole society. EWP structures enjoy the simplicity that insurance affords.

Our firm is here to assist you in “going with the flow” in the right direction, so please let us know your needs, and so we can find out if your situation is right for EWP and PPLI.

 

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

 

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Expanded Worldwide Planning (EWP) in Pictures

PPLI + EWP = New Insights

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

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

Privacy

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

EWP gives privacy and compliance with tax laws

Asset protection

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

Asset protection

Succession planning

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

Succession planning

Tax shield

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

Tax shield

Compliance simplifier

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

Compliance simplifier

Trust substitute

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

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

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

 

 

 

 

 

Chinese + Investor Control + PPLI = Success

Part II: EWP Chinese Case Study

Expanded Worldwide Planning (EWP) with the right fact pattern can deliver a Private Placement Life Insurance Policy (PPLI) which gives clients the control they wish.  In the much discussed Webber v. Commissioner, U.S. Tax Court case, the policy issued by the offshore company had a 953(d) election, therefore, the issues of investor control and diversification were of paramount importance.  What if the PPLI policy had been a non-953(d) issued PPLI policy?

For international clients with no connection to the U.S., a non-953(d) policy suits their needs perfectly.  So where does that leave us on the investor control issue?  It eliminates it, along with the diversification requirement under the U.S. tax code.  Why?  Because, if the insurance company was domiciled in Barbados, we are using the Barbados tax and insurance code. For this jurisdiction there are no investor control and diversification requirements.

Let us use a Chinese family as a case study.  Mr. Lee’s wealth had been generated from steel manufacturing in China. Over the years he has used various offshore structures.  Mr. Lee is now concerned with CRS and the fact than these offshore structures will now be reported to Chinese tax authorities.  Using EWP and a properly structured PPLI policy, the insurance company will become the beneficial owner of the assets inside the PPLI policy.

If ties develop to the U.S. through Mr. Lee’s daughters, who are attending school in the U.S., we can also issue a 953(d) PPLI policy to benefit them and shield them from tax. By using an EWP structure, Mr. Lee and his family can keep their affairs private, tax efficient, and tax compliant.

Now back to the Webber case. The most comprehensive article on investor control, as it pertains to PPLI policies, that I have read is by Steven Horowitz. The article is impressive both in terms of the detailed analysis of investor control, and the conclusions that Mr. Horowitz reaches.  We quote one of his key points below, and invite you to read the full article,

“I truly believe that the Service should have lost the case on the issue of investor control, but not because of the fact that the investor/ Taxpayer did not exercise too much control. Rather, the case should have been decided based upon the one major point of law, namely: Jeffrey T. Webber did not own the policy. The body of case law and revenue rulings, right or wrong, provides that it is the “policyholder/ owner of the contract” (See, Rev. Rul. 82-54, 1982 C.B. 11), must be the one who has exercised the excessive control over the investments within the contract. The Code provisions and historical body of tax law which govern the tax treatment of life insurance policies and annuity contracts provides in pertinent part as follows in a very clear fashion, the relevant language is as follows: the Policy Holder and owner of the contract are the parties who may not exercise an overabundance of control over the investments within the contract. As Mr. Webber was not the owner of the policy or policyholder (without application of the grantor trust rules), then the Court could not reach the conclusion that it reached without first dealing with the issue of grantor trust status (which would have made Mr. Webber the “Owner” for all federal income tax purposes), (See Rev. Rul. 85-13, 1985-1 C.B. 184).”

Most wealth owners wish structures where they maintain control of their assets. They also wish to keep their affairs private, tax efficient, and tax compliant. Using EWP and a properly structured PPLI policy, it is possible to achieve all these aims.

Please let us know how we can assist you in using these structures.  Our experienced staff is here to serve you.

 

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