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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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 RFC, @ 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 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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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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  • 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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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 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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PPLI + EWP = Unique Benefits

Expanded Worldwide Planning (EWP)

If a tax authority wishes to tax something, two items of concern are what type of tax to apply and was the transaction done in its jurisdiction. In our internet age this is not always so easy to clarify.  Our embrace of Expanded Worldwide Planning (EWP) makes this process of classification of tax and location simpler.

At the heart of EWP is a properly structured Private Placement Life Insurance (PPLI) policy. The assets inside this policy can be anything that can held by a trust company. These assets can also be located anywhere in the world.  While these assets are inside this PPLI policy, all tax is deferred.  At the death of the insured life/lives under the policy, these assets pass tax-free to the beneficiaries of the PPLI policy.

The news items that gave birth to our thoughts we will discuss below.  But first some more about EWP and PPLI, and how it can streamline reporting obligations to tax authorities, and bypass the need to classify the type of tax that needs to be applied to the assets. As we stated above,all tax is deferred for assets inside a properly structured PPLI policy.

Further, for reporting purposes, the insurance company becomes the beneficial owner of the assets inside the policy.  For clients not seeking to hide assets, but seeking legitimate privacy, this is an added bonus for using EWP.

What to tax and where it is located?

 Our first news item we have quoted previously, and now use it to illustrate how a new tax entity is not so easy to fit into an existing tax code that was written before this new tax entity was even invented. The taxation of property and currency occupy different sections of a tax authorities code.

 Courtesy of Mateo Jarrin Cuvi of Taxlinked.net

“Israel’s tax authorities have decided to classify Bitcoin & other cryptocurrencies as property instead of currencies. How will this affect their taxation.”

Our next quote deals with the location of the item to be taxed, and nicely illustrates how this can be challenging to governments and tax authorities.

Courtesy of Brent Kendall and Nicole Hong of the Wall Street Journal

“High Court Grapples With Case of Emails Stored Abroad”

WASHINGTON—Supreme Court justices voiced concern Tuesday that Microsoft’s resistance to U.S. search warrants for customer emails stored overseas would hamper criminal investigations, in a case that pits leading tech companies against law enforcement.

The justices were reviewing a lower-court ruling Microsoft won in 2016 that clipped the Justice Department’s authority to obtain overseas emails. The battle dates back to 2013 when the U.S. got a warrant that ordered Microsoft to hand over messages in an email account that was linked to narcotics trafficking. Microsoft argued the warrant wasn’t valid because the emails were stored in Ireland.”

Wealthy international clients are looking for simple and compliant structures that also have privacy safeguards.  Using EWP with PPLI can give this to them.  Please let us know how we can assist you further with using these unique and straightforward structures.

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

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