Overcoming Obstacles Gracefully

Let PPLI Show the Way

Private Placement Life Insurance (PPLI) is a vehicle to overcome obstacles for structuring assets for wealthy international families. This is greatly aided by the concept of Expanded Worldwide Planning (EWP). Sometimes inspiration is necessary to overcome obstacles. To find this inspiration look no further than the remarkable life of Helen Keller. We will learn more about her amazing life later on, but first, let us focus on EWP.

We find the definition of EWP in the Wikipedia page International tax planning. Here is the opening paragraph:

International tax planning also known as international tax structures or expanded worldwide planning (EWP), is an element of international taxation created to implement directives from several tax authorities following the 2008 worldwide recession.

Further explanation is given in the Principles section:

EWP allows a tax paying entity to simplify its existing structures and minimize reporting obligations under the Foreign Account Tax Compliance Act (FATCA) and CRS. At the heart of EWP is a properly constructed Private placement life insurance (PPLI) policy that allows taxpayers to use the regulatory framework of life insurance to structure assets along the client’s planning needs.

These international assets can also comply with tax authorities worldwide. EWP also brings asset protection and privacy benefits that are set forward in the six principles of EWP below. The other elements in the EWP structure may include the client’s citizenship, country of origin, actual residence, insurance regulations of all concerned jurisdictions, tax report requirements, and client’s objectives.

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.

The Six Principles of EWP

To address the obstacles in structuring assets for wealthy international families, these six principles are incorporated in the solution to produce the best possible planning outcome for the family.

Privacy

Asset Protection

Succession Planning

Tax Shield

Compliance Simplifier

Trust Substitute 

The Life of Helen Keller

We return to Wikipedia for this summary of the remarkable life of Helen Keller:

Helen Adams Keller (June 27, 1880 – June 1, 1968) was an American author, political activist, and lecturer. She was the first deaf-blind person to earn a bachelor of arts degree. The dramatic depictions of the play and film The Miracle Worker made widely known the story of how Keller’s teacher, Anne Sullivan, broke through the isolation imposed by a near complete lack of language, allowing the girl to blossom as she learned to communicate. Her birthplace in West Tuscumbia, Alabama, is now a museum and sponsors an annual “Helen Keller Day”. Her birthday on June 27 is commemorated as Helen Keller Day in the U.S. state of Pennsylvania and was authorized at the federal level by presidential proclamation by President Jimmy Carter in 1980, the 100th anniversary of her birth.

Thankfully in our EWP and PPLI structuring we do not face the tremendous challenges faced and overcome so gracefully by Helen Keller. She can serve as a model for all of us for what is possible in the face of extreme difficulty. As always, we welcome your comments and questions.

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

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The Rule of Law in Action

PPLI Brings Ultimate Sophistication

Private Placement Life Insurance (PPLI) brings the words of Leonardo da Vinci to life:

“Simplicity is the ultimate sophistication.”

The transformation from simplicity to sophistication can be accomplished through the rule of law. In our PPLI work for wealthy international families, we must frequently turn complex and sometimes contradictory tax laws into a simple, understandable, and workable structure.

Detailed analysis of the laws that govern the nationalities and residences of the family members must be undertaken. We welcome this challenge and enjoy the process. This thorough and meticulous study is highly individual to each family, so our short article is not the appropriate place to give a detailed example. Further on, we will bring you some humorous and not-so-humorous news stories on the rule of law.

There are always three elements in a PPLI policy: the owner of the policy, usually a trust; the life or lives insured; and the beneficiary of the PPLI policy’s death benefit. The domicile of each of these three elements must be studied. The domicile of each of these elements of the PPLI policy might be different, and a misinterpretation of the laws that affect each could lead to a wrong result in structuring for the family.

We diligently pursue this study. We frequently adjust the PPLI structure to make the elements work for the family, ensuring compliance with all the tax authorities involved. The rule of law also has its light side too. As we read in this recent Wall Street Journal article, by Josh Jacobs and Matthew Dalton. What we find humorous is not the present-day rodent situation in Paris, but the legal argument put forward in the 16th century when France was faced with a similar problem.

In France, Even the Rats Have Rights

Rodents overrunning Paris have defenders who say the varmint has a right

 to inhabit the City of Lights too.

‘Rat-Prochement’

PARIS—Rats were popping up at supermarkets, parks and nurseries when a city official convened a crisis meeting last fall to discuss ways to cull the population.

That was the first time Geoffroy Boulard, mayor of the 17th arrondissement in northwestern Paris, realized the rodents are backed by a vocal lobby. Ten protesters stepped forward to denounce exterminators’ plans to poison the animals. They urged a more humane method: Deploy birth-control drugs.

In the Middle Ages, people were helpless to stop the creatures from invading pantries and destroying crops. Lacking effective poisons, authorities took to bringing legal charges against rats for their misdeeds, according to “The Criminal Prosecution and Capital Punishment of Animals,” a lengthy history by E.P. Evans.

The rats weren’t defenseless in such cases. When an ecclesiastical court in Autun, France, brought charges in the 16th century against a group of rats for destroying the local barley crop, a well-known lawyer named Bartholomew Chassenée was appointed by the court to represent them. Mr. Chassenée mounted a vigorous response.

“He urged, in the first place,” Mr. Evans wrote, “that inasmuch as the defendants were dispersed over a large tract of country and dwelt in numerous villages, a single summons was insufficient to notify them all.”

Now a more serious issue that relates to the families that we serve from the website of the international law firm, Mishcon de Reya.

Legal challenge to Common Reporting Standard

(CRS) and Beneficial Ownership (BO) registers

Mishcon de Reya has taken legal steps against the Common Reporting Standard (CRS) and the Beneficial Ownership registers to call into question the wider repercussions for fundamental rights and the relationship between individuals and the State.

Our contention is that the publication of sensitive data concerning the internal governance and ownership of private companies by the Beneficial Ownership Registers is not necessary to achieve the stated objectives.  Similarly, we believe that the exchange of information under the CRS is excessive, as information is exchanged indiscriminately and affects all account holders regardless of the size of the account.

Our firm is dedicated to putting the rule of law to the best use for our PPLI clients. We invite you to join our group of satisfied, wealthy, international families by contacting us today.

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

 

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How Is Change Implemented with PPLI?

Change Comes Slowly to PPLI

 Private Placement Life Insurance (PPLI) gives wealthy international families a conservative structure to achieve enhanced privacy and a tax free environment for their assets. At first glance, it would not seem that PPLI would share something in common with Ralph Lauren, the well-known fashion designer, but read on, and you will see how they are connected.

PPLI structuring is basically using available laws and regulations to the best possible advantage for each unique family situation. Why not take a “straight and narrow” route and avoid issues with the tax authorities of all the countries involved in the structure?

Life insurance is well established in the laws and regulations of most countries in the world.  It is considered a benefit to society: 

“Life insurers are vital to an efficiently functioning modern economy and society and are a key contributor to long-term economic growth and improved living standards,” states a 2016 report by The Brattle Group, “The Social and Economic Contributions of the Life Insurance Industry.”

Because life insurance permeates the social fabric at all economic levels, the laws and regulations on life insurance tend to be more stable and less subject to political change. Later on we will give you an example of how a tax law change in the U.S. is playing out in a complex manner that will take many years to fully resolve.

What are a few key elements that show us why it is vital to use life insurance in structuring for wealthy international families?  Here are two significant ones:

Simplified Reporting

A compliant PPLI policy is an asset that can hold various investments, including multiple underlying traded or non-traded companies as well as private equity. The insurance company is legally seen as the owner of these investments, hence this simplifies the reporting requirements under most reporting regimes. CRS reporting is also simplified and limited, based on correct structuring at the inception of the process.

Asset Protection

 PPLI can offer privacy and, in some cases, significant protection from creditors. Assets held in a PPLI policy are held in a Separate Account and are protected from the assets of all other policyholders and the general account of the insurance Company.

Here is our example of how a recent tax law change is playing out in the U.S.

New Hampshire Fights Supreme Court

Sales-Tax Ruling

Retailers in five states without a sales tax face new burdens

 

New Hampshire is one of five states without a broad-based statewide sales tax, a status that had insulated retailers from a task familiar to businesses elsewhere. That cushion lasted until the U.S. Supreme Court’s June decision in South Dakota v. Wayfair, which lets states require retailers to collect sales taxes even if those businesses lack a physical presence in the state.

States with sales taxes are still figuring out how they’ll approach out-of-state retailers. New Hampshire, with a special legislative session scheduled for Wednesday, isn’t waiting to respond. Its reaction to the court’s decision will spur the next round of skirmishes over cross-border sales-tax collection.

States with sales taxes are working on their regulations to get out-of-state sellers registered in their systems and collecting the tax. In some cases, they need to wait for their legislative sessions for new or revised laws.

Does all this sound familiar?  Change the actors and subject matter in the play and you have the worldwide reactions to implementing FATCA, CRS, Registers of Beneficial Ownership and other mandates from governments and regulatory bodies around the world.

Although far from timeless, our firm’s PPLI structures that use life insurance as its core element have withstood many years of changes in transparency, tax legislation, and calls from government officials to end “aggressive tax planning.” Planning with life insurance could be seen as the eye of the hurricane–an area of calm in the midst of constant change. We achieve outstanding results without being aggressive.

We thank Ralph Lauren for his quote, and enjoy the challenge of securing exceptional results that have weathered many storms. As always, we welcome your comments and questions.

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

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No Separation of Child/Parent

PPLI: United We Stand for Tax Savings

Private Placement Life Insurance, (see PPLI in our blog) makes use of one of the simplest and oldest tax shields that exist–life insurance. Donald Trump’s very unpopular immigration policy of separating children from parents who cross the border with Mexico  reminds us of another separation that has undesired consequences for tax savings.

This separation is summarized in the catchy yet deceptive phrase, “Buy term life insurance and invest the difference.”  By taking this advice one is, to use another common phrase, “Throwing out the baby with the bath water.” We will show you by example that if you keep your investments inside a PPLI policy, you can benefit handsomely.

Before we give you an example of tax structuring using PPLI, let us return to government regulations. We used a very controversial example with Donald Trump and Mexican children, but how does our firm interact with governments worldwide on a regular basis in relation to tax structuring for wealthy international families.

The process works like this:

“The laws, tax codes, and regulations that we study to assist our clients are complex. We study these laws, tax codes, and regulations with an eye to selecting the elements that can best serve our clients.  If the tax authorities of governments think we have gone too far with our use of these laws, tax codes, and regulations, they amend them, and so the process continues.”

Clients are now looking at simple and straightforward solutions to their complex problems. Since a properly structured PPLI policy is at the heart of our planning, and insurance regulations in most countries are more long- lasting and simpler than the tax codes, we have a significant advantage in helping our clients.

PPLI solves or mitigates issues for clients involving:

  • Tax deferral
  • Income tax planning
  • Succession planning
  • Asset protection
  • Compliance
  • Privacy protection
  • Estate planning

PPLI Tax Deferral

Here is an example that involves the PPLI benefit of tax deferral.  In the right circumstances, business income can also benefit from tax deferral.  Since we are using a life insurance policy, all the assets inside the policy will pass tax-free to the beneficiaries named in the PPLI policy.

Eduardo Flores is an investor located in a high tax state in the U.S. with a combined tax rate of 53%. Eduardo is a successful businessman with $50 million of investable assets. Eduardo has been receiving a 8% return on these hedge fund investments, but realizes more than half of his profits will benefit federal and state government. See Figure 1 below.

PPLI generates $4.9 million more than a taxable hedge fund investment after 10 years. After 20 years, PPLI has outperformed by over $18 million. Held for 40 years, the PPLI policy will produce $120 million more than a taxable account.

If you buy term life insurance, and invest the difference, your investments miss out on the substantial benefit of tax deferral. Why separate yourself from this outstanding benefit. Most of us would not wish to step into Donald Trump’s shoes and be subject to worldwide criticism for an unpopular decision. Make the right decision, and investigate how PPLI can best serve many of your structuring and tax planning needs.

We are here to serve you towards this end, and very much wish to hear what you have to say about our firm and ideas. You can place any comments at the bottom of the page, and if you have interacted with us in the past, we would appreciate any testimonials in our blog or Yelp. Thanks in advance.

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

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Location Will Get You Everywhere

PPLI Elevates Your Tax Efficiency

In using Private Placement Life Insurance (PPLI) for tax efficient structures for wealthy international families, the location of the various elements in the structure is of vital importance.  If any one of these elements is out of position, the whole PPLI structure suffers.

Since the French Open tennis tournament is now being played, we will include a handy description of being out of position below.  For an example from the tax world, a matter from the new U.S. Tax overall was brought to our attention with a video from  Fox News, (Fox Business).  This video highlights the importance of location for the government entity who is collecting the tax.  In this example, a company moves its headquarters, thus, a change in the U.S. taxing authority on the state level.

Merely listing the various location elements in PPLI structuring shows us that we are putting together a complicated puzzle.  But once the last piece of this puzzle is successfully put in place, a powerful result takes place for the client.  We include our list at the end of our blog.

Take this example from a recent PPLI case.  A U.S. Green card holder who spent little time in the U.S., generated her income in a E.U. country through a BVI company. She was not a tax resident of this E.U. country, but wished to shield her substantial income from U.S. taxes.

A foreign non-grantor trust purchased a PPLI. We placed her business inside a holding company structure that was inside the PPLI policy. Now, instead of paying U.S. income tax, and being subject to U.S. estate tax, she was able to take tax-free distributions from the PPLI policy. Many different types of locations were involved here!

We now go to the French Open, where one of the coaches of Rafael Nadal, Francisco Roig, describes one way Nadal maneuvers his opponent out of position, for our example, please read location:

“It’s tougher to play him physically because he’s moving you much more than before,” Roig said. “He’s opening the court unbelievable with the backhand. Before, the backhand—against a right-handed player—was more in the middle. But now you have to run three or four meters more, and open the width in the forehand area. You are soon out of position and then he kills you again with the forehand cross court.”

Our quote is courtesy of Tom Perrotta of the Wall Street Journal,

“A Scary Thought at the French Open: Rafael Nadal Is More Efficient Than Ever.”

This is also our goal for international tax planning–to be more efficient than ever.

Before pondering our lists of location elements, we give you the Fox News video, highlighting the change of physical location of a major company in the NYC investment world.

We must consider the location of all these elements when we craft our structures:

  • the trust that usually owns the policy;
  • the trustee of the trust;
  • the insured or insureds on the policy;
  • the domicile of the insurance company;
  • the assets;
  • the holding company structures, if any;
  • the beneficiaries.

I am sure there are more, but these are the main ones that come to mind.  Please give us your thoughts, and thank you for your continued trust and support.

 

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

 

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Different Uses of a Tax Shield

PPLI: Two Sides of One Face, Part I 

Tax Shield concepts are best understood by comparing similar Private Placement Life Insurance (PPLI) concepts.  In our specialty, PPLI structures for wealthy international families, an article caught our attention that highlights our topic–the difference between PPLI structuring for families strictly in the U.S. context, and those structures that work best for international families.

Our topic is much like the picture of this cat: two sides that have something in common, yet also something that can be very different.

The international families we work with may have ties to the U.S. like U.S. beneficiaries, real estate, or investments, but they also have substantial wealth outside the U.S.  Our firm is able to create structures for these international families that have a very robust character.  An odd phrase for international tax planning, but as you will read below, this robust character allows our firm many more possibilities than we have for our clients who are U.S. persons and just have holdings inside the U.S.

The article mentioned above is “Private Placement Life Insurance Primer, Recent tax law changes make for a particularly interesting time to explore PPLI,” by Brian Gartner and Matthew Phillips.

In the structuring process, one decision that is made early on in the process is whether to put the policy under U.S. tax and insurance rules (a so-called 953(d)) policy, or that of the country where the insurance company is domiciled, usually Bermuda or Barbados, a non-953(d) policy.  If we can use a non-953(d) policy, we have much more flexibility in the structuring process.

In the picture of the cat, the two blue eyes are blue, and contrast to the black and gray sides of the face.  For our discussion, the two blue eyes are what is similar to both 953(d) policies and non-953(d) policies.  So we will look into the eyes of our topic first, and discuss the similarities.

A key element in our two policy types is the tax deferral of the assets inside the policy.  This chart, courtesy of the article mentioned above, is an example of U.S. centric planning. It shows how powerful tax deferral can be in terms of what an investor keeps after taxes. The chart compares a  Taxable Investment vs. placing those same assets inside a properly constructed PPLI policy.

Another aspect where we look into the same pair of eyes and see something similar relates to trust planning with PPLI.  We quote from the article:

“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.”

In our next blog we will discuss how using a non-953 policy works with the investor control and diversification requirements of the U.S. tax code.

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

 

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Foreign Investment in U.S. Real Estate

PPVA vs. a “Blocker” Corp. Structure 

A sizable portion of the $350-500U.S. billion foreign inbound investment in the U.S. annually is placed in real estate. A Private Placement Variable Annuity (PPVA) can greatly reduce taxation and reporting requirements on these investments. The PPVA structure outlined in this blog is superior to the usual blocker corporation structure.

For the main points in this blog, we are indebted to Gerald Nowotny, a U.S. attorney, who writes frequently on Private Placement Life Insurance (PPLI) and PPVA topics. Mr. Nowotny’s recent article on PPVAs,“It Do Me Good!”  is our source.

According to Mr. Nowotny, the PPVA structure accomplishes several important tax and non-tax objectives:

  • “Avoidance of the need on the part of the foreign investor to file a U.S. income tax return and falling under the scrutiny and jurisdiction of the IRS.

 

  • Recharacterization of income that would be otherwise subject to taxation at the top corporate rates into interest and dividend income that is subject to lower tax rates under applicable tax treaties with the U.S.

 

 

  • Minimization of corporate taxation on the “blocker” corporation structure frequently used as part of this planning.”

Our blog is usually about the uses of PPLI structures for wealthy international families.  At times the use of a PPVA structure makes more sense, so we give you an example from Mr. Nowotny’s article to illustrate this point.

We have changed the example used in Mr. Nowotny’s article slightly, because we favor using offshore companies,who in this case, have made a 953(d) election. We have found that this results in more streamlined compliance reporting.

PPVA Structuring Example

Acme Investment Management is a real estate investment management organization investing in several different U.S. real estate markets. Acme creates an insurance dedicated fund (IDF) with the life insurance company, Corona Life, that will issue the annuity. We quote from the full article:

“Based upon the total premium (investment) commitment, Corona charges the policyholders 25 basis points per annum. The total cost per year is $250,000 per year. Over the course of the twenty year life of the fund-the total projected PPVA costs are $5 million. The total cost of the PPVA is roughly equal to the investor’s tax liabilities using the blocker corporation in the first 2-3 years.

The PPVA will not have any withholding for FIRPTA. Under the treaty, annuity income is not subject to U.S. income and withholding taxes. Therefore, neither Acme nor Corona will be required to withhold anything on its distribution.

Assume the same facts as the description above except for the fact, that the PPVA structure has no tax leakage. Corona does not have any withholding tax obligation on the income distributions of  any of the annuity payments or at liquidation of the investments. Corona is not subject to withholding under FIRPTA on the sale of the real estate.”

Please let us know how a PPVA structure can assist you in planning for the U.S. real estate investments of non-U.S. persons. We welcome your questions and comments.

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

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EWP for Tomorrow’s Movers and Shakers

PPLI for International Entrepreneurs

 International tax planning is best done before fortunes are made.  Rarely does this occur.  Our firm is fortunate to have a case where Expanded Worldwide Planning (EWP) is benefiting one such person.  By consolidating his worldwide holdings, which are in the startup phase, inside a properly constructed Private Placement Life Insurance policy (PPLI), we are securing these benefits for him:

  • 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 PPLI 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 PPLI death benefit.

Our client has businesses in natural resources, sports, gaming, trading, content management, and investments.  His enterprises are in the U.S., Europe, and Africa.  He is a U.S. Green card holder with residence status in the U.K., and travels with a passport from a third country.  His startup businesses only generate $2-3MU.S. annually with outstanding potential to grow to $5-10MU.S. in just a few years.  He is a perfect candidate for EWP planning, and coming to us at the most opportune time.

When you work in a field you sometimes take things for granted that are really quite extraordinary.  This is the case here.  I was having lunch with a friend a few days ago, and told him what our firm was doing for this client.  My friend was astonished and said, “This is a perfect fit.”

If you know additional “perfect fits” please let us know, and we can accomplish the same for them.  Thank you for your continued trust and support.

 

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

 

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PFIC + subpart F + GILTI rules

PFIC + subpart F + GILTI rules = PPLI Opportunity 

A lot of acronyms to swallow!  Yes, the recently enacted U.S. tax reform legislation has been very unkind to those subject to these sections of the U.S. tax code.  Our good friend Private Placement Life Insurance (PPLI) in combination with Expanded Worldwide Planning (EWP) can soften, and in some cases, eliminate these taxes. We will discuss each of these tax rules separately, but first some basics on how you can achieve this success.

Distributions from a properly structured PPLI policy are distributions from a life insurance policy. Like all policies, both U.S. and issued in other jurisdictions around the world, the distributions are subject to the tax code sections that apply to life insurance.

In the U.S. context one can withdraw all basis in the policy, which are the premiums paid, tax free, and take very low cost loans to withdraw the remaining funds.  The costs of these loans is equivalent to an administrative charge, and is usually in the range of 25 bps. PPLI companies are most frequently found in Bermuda and Barbados, and have similar very friendly client access to the funds inside the policy.

The concept of a distribution is important, because a properly structured PPLI policy can hold many different types of assets, basically anything that can be hold by a trust company. More pointedly for our short blog, passive foreign investment company (PFIC) income and subpart F income can be structured inside a PPLI policy, and, therefore, shielded from tax.

It is not in the scope of this blog to discuss the technical tax aspects of these code sections, so we refer you to an excellent article by James Meadow CA, CPA (NC), LLM (US TAX), MBA published recently in Moodys Gartner Tax Law, “The US “Transition Tax” for 2017: More Sad News for Many US Citizens Residing Abroad,”

The article discusses tax from the standpoint of how it affects U.S. persons residing outside the U.S., but gives a very clear and cogent review of how PFIC holdings and those taxed under subpart F are treated under the new U.S. legislation.

The recent legislation has brought an increase in taxation for those who have subpart F income. Thus, we encourage those in this situation to explore using PPLI.  Using PPLI to shield PFIC income has been used for many years.

Section 951A gives us GILTI

The new U.S. tax legislation gives us a new section of the tax code, Section 951A. For those who have an interest in a controlled foreign corporations (CFC), particularly if they are not C corporation shareholders, there is a new opportunity to use a PPLI structure to shield this income from tax. Section 951A gives us global intangible low-taxed income (GILTI), which if held in other than a C corporation, has very unfavorable tax consequences that can be greatly mitigated by using PPLI.

We use the concept of Expanded Worldwide Planning (EWP) that allows income with unfavorable tax consequences to be reclassified as a distribution from a properly structured PPLI policy.

Your suggestions, comments, and questions are greatly appreciated. Thank you for your continued trust and support.

 

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

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