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 RFC
Inside and Outside PPLI
Academics Teach Us a Lesson
Section 1, Part 4
Professor PPLI, a key element in this discussion is magic. Give us more insight into how PPLI makes some things disappear and others appear.
This is a good way to view the topic. When we consider the six elements of Expanded Worldwide Planning (EWP), they can be grouped into these two categories. Elements that disappear and those that make things appear.
These categories are somewhat arbitrary, but allow you to collect certain thoughts around these six elements of EWP. We can place privacy, asset protection, and tax shield in the Disappearing Category.
Legitimate privacy allows wealthy families to conduct their affairs outside the prying eyes of those who do not have a rightful interest in their financial affairs. The tax shield in a properly structured policy eliminates taxes in most jurisdictions throughout the world. Asset protection keeps assets outside the reach of ex-spouses, and those seeking easy access to wealth without proper legal authority. This is accomplished using the correct asset protection trust in tandem with the PPLI policy, which adds another layer of protection to the trust.
In the Appear Category, we place trust substitute, compliance simplifier, and succession planning. In some civil law jurisdictions, trusts are not recognized or do not function as well as they do in common law jurisdictions. Using a PPLI policy in the structure can, in some cases, simplify and enhance the planning. PPLI is definitely a compliance simplifier. Since the insurance company becomes the beneficial owner of the assets inside the policy, reporting obligations are greatly simplified and in some cases eliminated. Since the life insurance death benefit passes directly to the designated beneficiaries, it can deliver the death benefit outside the forced heirship laws that exist in some jurisdictions.
One magical aspect of PPLI is that although it is classified as a life insurance product, it functions more like a trust. Since most policies are owned by trusts, you might say that PPLI and trusts join together and become a successful and secure asset structuring marriage. Professor PPLI, please tell us how this is possible.
The PPLI policy provides elements which are not possible with a trust alone. A trust can accomplish many useful things such as putting into legal language the aims and goals of the wealth owners. A trust also creates an entity that can live beyond the lives of the wealth owners. The following comparison tells the story.
Trust and Insurance Comparison
- Contractually based and used by millions
- Tax deferral
- Insurance company is beneficial owner
- Simplified or limited reporting
- Potentially tax free
- No capital gains taxes
- No trustee
- Asset protection
- Provides some asset protection
- Sometimes seen as a tool for the rich
- Requires “trustee” with full control
- More stringent reporting requirements
- Tax filings for trust and possibly beneficiaries required by some jurisdictions
Professor PPLI, you use two very different academic articles in this Section to illustrate a point. Please explain more fully how these two articles relate to PPLI.
Wealthy families are looking for simple and straightforward methods to structure their assets. In part, these two articles illustrate that the financial, political, and governmental aspects of our lives are in constant change. Laws are enacted which sometimes have the opposite effect than was intended by their creators, as one article proves.
Governments are seeking more ways to tax wealthy families, and this is seen by some as a societal good, and by others as governmental overreach. Once assets are properly structured inside a PPLI policy, they are somewhat isolated from these forces, and can pass to future generations according to the wishes of the wealth owners.
by Michael Malloy, CLU TEP RFC, @ Advanced Financial Solutions, Inc
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