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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Tortoises Have Strong Shells

PPLI’s Tax Shield Is Even Stronger

The tax savings element of Private Placement Life Insurance (PPLI) is impressive. We invite you to reflect on your own attitudes toward tax savings by offering two articles on tax that appeared this week in the media.

The tax codes of most countries are a maze of regulations that require professional assistance to extract the most salient tax saving points.  PPLI is at the forefront of structuring techniques that take advantage of maximum tax savings, and at the same time, full compliance with the world’s tax authorities.

How does PPLI become the “leader of the pack” when it comes to tax savings?

This is summed up mostly in two words: Life Insurance. The life insurance laws in most countries are very tax friendly–one receives tax deferral for the investment component of a life insurance contract, and at the death of the insured person(s), the death benefit is passed tax-free to the beneficiary.

With PPLI you couple the life insurance component with an open architecture platform. What does this allow? This allows assets to be located almost anywhere in the world, and to have asset managers located in most jurisdictions in the world. PPLI structuring is a very powerful tool for wealthy international families, and is difficult to achieve with entity planning only–creating trusts, foundations, corporations, etc.

Now for our news articles that reveal interesting attitudes towards wealth and taxes. The first is from Bloomberg, Top 3% of U.S. Taxpayers Paid Majority of Income Taxes in 2016.

“Individual income taxes are the federal government’s single biggest revenue source. In fiscal year 2018, which ended Sept. 30, the individual income tax is expected to bring in roughly $1.7 trillion, or about half of all federal revenues, according to the Congressional Budget Office.”

Bloomberg looked into the 2016 individual returns data in detail for some additional insights illustrated in the chart below:

  • The top 1 percent paid a greater share of individual income taxes (37.3 percent) than the bottom 90 percent combined (30.5 percent).
  • The top 50 percent of all taxpayers paid 97 percent of total individual income taxes.”

 

 

Our next article is from The New York Times, How Jared Kushner Avoided Paying Taxes.

“Jared Kushner has a net worth of almost $324 million, and his company has been profitable. But Mr. Kushner, who is President Trump’s son-in-law and senior adviser, appears to have paid almost  no federal income taxes for several years running, according to documents reviewed by The New York Times.”

The article goes on to detail Mr. Kushner’s real estate investments, and how they result in a zero tax bill.

Ironic Fact

When one combines the salient points of these two articles, it is ironic to reflect that the wealthy are the ones who both pay the most taxes, and seek to save the most taxes. When anyone prepares their income tax return, wealthy or poor, do they seek to pay the most tax or the least? Many commentators criticize wealthy individuals and corporations for not paying their fair share of taxes. But what is this fair share? Who decides what a fair share is?

Thankfully, we don’t have to answer this question. Our goal is to maximize your investment gains through strategies that minimize your worldwide tax burden. Please send us your tax concerns and questions, so we can structure a plan that gives you all the tax savings elements of PPLI. You can share your experience and inquiries at the bottom of the page. Thank you.

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

 

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Time On Your Side

PPLI Produces Longevity Through Time

The stability of Private Placement Life Insurance (PPLI) in structuring assets for wealthy international families is a creation of how we look at the element of time. PPLI relies on the laws and regulations of insurance. These laws and regulations in most countries have been in effect for a longer period of time and are less subject to change than the tax codes in these countries.

When a new trend emerges frequently people line up on either side of the topic: some being in favor and others opposing this new trend. One such new trend for wealthy international families are the various citizenship by investment programs that are being offered by many countries. We will explore this trend, but first more on the workings of how PPLI can assist in the structuring of assets.

How does the element of time enter the picture? How does it add the stability that is currently being sought in the whirlwind of change brought about by FATCA, CRS, and the Registers of Beneficial Ownership?

This topic came into the light when I was reading a book that used first person interviews with various subjects to make certain points. I found the interviews lacked depth. Not particularly because they were poorly conducted, but just the fact that when you meet someone for the first time it is not the same experience as knowing a person for a long time.

In other words, one cannot form a deep, lasting friendship with someone unless one has known this person over some longer period of time. We can call this aspect of time duration or longevity. This aspect of time produces in us a certain feeling of comfort, much like returning to a habitual routine after a period of absence from it.

When we structure the assets of a family, we wish to bring them the comfort of having–Time On Your Side: knowing that the next generation will inherit assets through a tax-free PPLI death benefit. This is accomplished by using the time-tested body of insurance laws and regulations throughout the world.

The Economist article, “Selling citizenship is big business–and controversial,”  is in part disparaging of citizenship by investment programs because they are relatively new phenomenon, and somewhat outside the regulation of individual governments. Here are a few excerpts:

“To meet the demand for long-term visas and passports, more and more countries are flaunting their attractions. About 100 offer a “residence by investment” programme. Over a dozen offer citizenship—including five Caribbean island-states, Vanuatu, Jordan and, within the EU, Austria, Cyprus and Malta.”

 

“The industry, however, is under a cloud. It is suspected of commercialising and trifling with rights and privileges that patriots regard as sacred; and of making life easier for crooks and terrorists.”

 

“For the European Union in particular, the issue is delicate. It touches on one of the most “national” of competences—who lives in a country and bears its passport—yet has Union-wide consequences. An EU-member-country’s passport is also an EU passport; a “Schengen” visa grants access to 22 EU members and four other countries.”

 

“Both the EU and the OECD, a club of rich countries, are looking leerily at CRBI schemes. Later this year, the European Commission, the EU’s executive, is to publish a report on those offered by EU members. The industry fears the worst.”

 

At Advanced Financial Solutions, Inc. we are eager to put Time On Your Side, and hope you will take advantage of our many PPLI structuring programs that operate worldwide. Please let us know how we can help you achieve your aims in the area of privacy and tax minimization.

 

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

 

Michael Malloy, CLU, TEP

 

 

 

 

McDonalds and Stray Dogs

PPLI Gives Tax Relief

Incongruities can be resolved in both form and substance with Private Placement Life Insurance (PPLI). We frequently learn best from examples that jolt our minds into new understandings. When I was running recently in the park across from my hotel in Shanghai, I saw several stray dogs playing. They were having a marvelous time frolicking about on the lawn in between the beautiful, mature trees in the park.

These dogs had no sense that they were strays and thought of by humans as just common street dogs. In the international tax arena, strangely enough McDonalds has some connection to these dogs. We will explore this further in our article, but now back to #PPLI.

PPLI is of course a specialized form of life insurance, and when used properly fulfills the definition of life insurance in all respects. When used as a structure for wealthy international families, it acts more like a trust than traditional insurance.

This can make PPLI difficult to grasp for clients and advisors. If one starts from the six principles of Expanded Worldwide Planning (EWP), PPLI is seen in its true light: an excellent structuring tool for the assets of wealthy international families.

The six principles of EWP

 

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?

 

We will now return to McDonalds and the stray dogs. We give you a few excerpts from Paul Caron’s New York Times article, “EU Ends Inquiry Into Luxembourg’s Tax Deal With McDonald’s.

“The European Union has sparred with multinationals like Apple and Amazon as well as countries such as Ireland in its efforts to curb tax avoidance. In the case of McDonald’s, it is standing down.

The European Commission, the bloc’s executive arm, had been examining whether a deal that Luxembourg granted to McDonald’s may have led to the fast food chain’s paying less tax than it owed. The commission said Wednesday that these deals did not constitute illegal state aid.

The profits under scrutiny had not been taxed in Luxembourg or the United States, according to the commission, but it said that this was a result of a mismatch between the countries’ tax laws rather than special treatment from Luxembourg, and that no rules had been broken. Still, Margrethe Vestager, the European Union’s competition commissioner, said that it was important that Luxembourg change its laws to ensure profits do not go untaxed regularly.”

“Of course, the fact remains that McDonald’s did not pay any taxes on these profits — and this is not how it should be from a tax fairness point of view,” Ms. Vestager said in a statement. “That’s why I very much welcome that the Luxembourg government is taking legislative steps to address the issue that arose in this case and avoid such situations in the future.”

McDonald’s and the government of Luxembourg welcomed the decision from the European Commission.

“We pay the taxes that are owed and, from 2013-2017, McDonald’s companies paid more than $3 billion just in corporate income taxes in the European Union with an average tax rate approaching 29 percent,” McDonald’s said in a statement.”

After carefully following the law, albeit to its own advantage, McDonalds is now cast as a stray dog–as something common and vagrant, certainly not something to be admired. But in one sense it was just being a smart tax payer, trying to pay as little tax as possible, but still following the law. One’s attitude toward McDonalds is, of course, determined by one’s own attitudes toward what is fair and good corporate behavior. Is McDonalds to be judged poorly or judged to be a smart tax payer?

At Advanced Financial Solutions, Inc. we carefully examine the laws and regulations of all the countries of the world, seeking ways to lower your taxes using PPLI. We hope you will join our lists of satisfied clients by seeking our advice on structuring your assets.

We seek to keep you compliant with the world’s tax authorities, and at the same time pay as little tax as possible. Contact us today for a free initial consultation.

 

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

 

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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

 

 

Michael Malloy, CLU, TEP

 

 

 

 

 

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, @ 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, @ Advanced Financial Solutions, Inc

 

 

Michael Malloy, CLU, TEP

 

 

What Is Time?

PPLI Stops Time

 This week we will learn how a sophisticated structuring technique for wealthy international families, Private Placement Life Insurance (PPLI), has the ability to stop time. Yes, this may seem at first hearing outrageous, but from a tax and privacy perspective, this will be the conclusion of our article.

If PPLI has this ability, we must first define time. A tall order, you say. Let us look at a few quotes from William Shakespeare to get our bearings.

“Make use of time, let not advantage slip.”

“Let every man be master of his time.”

“I wasted time, and now doth time waste me.”

From these three quotes, we read that one element of time is scarcity: you only have so much of it.  And through your use of time, it is possible to place your affairs in more favorable circumstances.

What happens when assets are placed in a properly structured PPLI policy? These assets enter a privacy enhanced and tax-free environment. If this structure is properly maintained, from the time the policy is issued until the death of the last person insured under the PPLI policy, the assets are not subject to tax and receive enhanced privacy.  As far as tax laws are concerned TIME HAS STOPPED.

PPLI and Tax Law

 Let us leave the realm of poetry and re-enter the domain of tax concepts.  One element of tax law that is germane to time is the concept of constructive receipt. 

According to Investopedia, “Constructive receipt is a tax term mandating that an individual or business must pay taxes on income despite the fact that it has not been physically received. An individual is considered to be in constructive receipt of income when they have the ability to control or utilize the funds, even if they do not have direct possession of them, or if it is guaranteed they will have the ability to draw upon the funds in the future. A business is said to be in constructive receipt if the business has the ability to use the money without restriction or if it has been deposited into the business’ account. Constructive receipt of income prevents taxpayers from deferring tax on income or compensation they have not yet utilized or spent.”

The concept of constructive receipt is no longer applicable to a properly structured PPLI policy, because the assets have been reconstituted inside an insurance policy. The insurance company is now the beneficial owner of these assets for reporting purposes. When a family wishes to receive funds from the policy, they are distributions from the PPLI policy, and only charged a small fee, most usually around 25 basis points.

Again, the laws usually applicable to the assets inside the policy no longer apply. TIME HAS STOPPED.

Our firm gladly welcomes your structuring challenges, questions, and comments. We wish to participate in your quest to, as Shakespeare says, “Make use of time, let not advantage slip.”

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

 

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What Is Money?

Fungibility Is Key to PPLI

At the center of a Private Placement Life Insurance (PPLI) structure is fungibility. For PPLI this means in essence taking assets in a taxable environment into one that is tax-free. According to the Merriam-Webster dictionary, fungibility derives from the Latin verb fungi meaning “to perform (no relation to the noun “fungus” or the plural “fungi.”)

If something is fungible it is mutually exchangeable like an ounce of gold, or in other circumstances, as we will read further on in our article, the U.S. dollar held in the form of $100 bills.

This mutual exchange for a taxable environment for one that is tax-free is accomplished in PPLI by using life insurance. Perhaps a fungible transaction is not quite the right analogy.

Life insurance in the structure functions more like a membrane, where once the assets are properly structured inside the PPLI policy, the assets become recharacterized into a solution that has both outstanding tax benefits as well as enhanced privacy. Clients also can permeate this membrane for tax-free distributions on the income from the assets.

Worldwide life insurance has a tax-favored status, and this exchange from taxable to non-taxable can be accomplished with the creation of a PPLI structure that takes into account these key elements in a wealthy family’s situation:

  • Nationality of the family members;
  • Country of residence(s);
  • Location and type of assets;
  • Laws pertaining to trusts, life insurance, and other entities to be used;
  • Aims and goals of planning.

Once these elements are researched and analyzed, a tailor-made structure can be created for the family.  Wealthy international families are drawn to PPLI structures, in part, because of the legitimate enhanced privacy that can be accomplish inside this structure.

Governments and their tax authorities are in place, in the highest form, to secure the public good through the collection of taxes. Their citizens also have rights to privacy and, within the realm of law, to protect their private property from harm. Therefore, there is a built-in tension between these two aims.

Another built-in tension can occur in the financial world.  What happens when a country’s institutions don’t support a traditional banking system? One occurrence is that new systems are created to support the unique circumstances.  Let us take the extreme example of Somaliland.

For this example teaches us one of the underlying properties of what we call money: a means to facilitate a transaction. We are thankful to Matina Stevis-Gridneff in a recent Wall Street Journal article for these excerpts.

“An Isolated Country Runs on Mobile Money”

 

“HARGEISA, Somaliland—Hyperinflation and economic isolation have pushed this poor, breakaway republic closer to a virtual milestone than most other countries in the world: a cashless economy.

The continent, home to many of the world’s frontier economies, has come closest to skipping, or “leapfrogging” as it’s often called, traditional brick-and-mortar banks and going straight to heavily using phones as wallets.

And nowhere are the benefits of mobile money more apparent than in Somaliland, where the extreme economic and financial conditions have allowed Zaad, a service from the main local telecom, Telesom, to catalyze commerce in one of the most isolated parts of the world.

Once a week, Abdulahi Abdirahman hauls two bulky, heavy sacks of shillings from his gas station across Hargeisa to the money-exchange area downtown and, several hours later, returns with just a few dollar notes in his back pocket and his Zaad wallet loaded up.

Clients pay Mr. Abdirahman in Somaliland shillings. He needs to pay suppliers in dollars. Using Zaad, he gets half the payments in mobile money, meaning the cumbersome ritual has become more manageable in these times of high inflation.”

Money in Action Using PPLI

Now, again courtesy of The Wall Street Journal, by Joe Craven McGinty, we find another example of how money works in the real world.

“Cash Flow or Cash Stash? How Money Moves Around”

 

A record level of U.S. cash is circulating, but Americans aren’t spending the bulk of it.

So, where’s the money?

Up to two-thirds—or as much as $1.07 trillion—is held abroad. About $80 billion is held domestically by depository institutions. And the rest—as little as $453 billion—is in the hands of domestic businesses and individuals.

Last year, according to figures published by the Fed, $1.6 trillion was in circulation, including $1.3 trillion in $100 bills, or 80% of the total. In 1997, $458 billion circulated, including $291 billion in $100s, or 64% of the total.

The circulating currency held abroad could range from one-half to two-thirds of the total, the Fed estimates, or a range of $800 billion to $1.07 trillion.

Wealthy families worldwide have the option of creating their own unique structures using PPLI. These structures can become, in effect, private banks. By uniting PPLI with family assets and a bespoke banking relationship, much is achieved that cannot be accomplish in any other way. Please let us know how we can assist you in this endeavor. We welcome your questions and comments.

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

 

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