Effective PPLI Real Estate Structures-2

Part II: Outstanding Results Realized

As we discussed in Part I, foreign Investment in-bound into the United States faces many hurdles and sometimes unforeseen costs.  An insurance solution using a specific life or annuity product can greatly simplify or eliminate many of these issues and make long term investing even more appealing.

All foreign Investors are exposed to a myriad of US tax consequences, including withholding taxes (30%), capital gains, and even U.S. Estate Taxes. Life insurance, and specifically Private Placement Life Insurance (PPLI), is a well-established tax and estate planning tool that many qualified investors utilize to mitigate and manage these exposures.

PPLI combines the well documented and compliant attributes of a standard life and annuity insurance product with a flexible investment platform. The flexibility includes a broad range of asset classes and employs qualifying Separately Managed Accounts (“SMAs”) or Insurance Dedicated Funds (“IDFs”).

Most structures can remain intact with the simple addition of a compliant life or annuity policy. PPLI can accommodate most custodians, managers or funds, making the transaction as simple to set up as a trust or other less effective structures.

PPLI also provides simplified reporting and confidentiality. The policy is reported once, and not the assets held or underlying investments. The owner reports a life policy and not that they are investors or hold assets in the U.S.

PPLI provides the same tax advantages of commercial life insurance:

  • Tax free or tax deferred growth of internal cash value
  • Tax free or tax deferred payment of death benefit
  • No capital gains taxes
  • No income taxes
  • Ability to access Cash Value through tax free loans
  • Ability to manage or mitigate estate taxes (if applicable)

The Summary Chart below compares using PPLI with other commonly used structures.  The small additional expense of adding PPLI to a structure gives the non-U.S. person many additional benefits that cannot be achieved otherwise.

Summary Chart

  Trust with LLC Dual Corporation Individual with LLC Insurance with IDF
Capital gains tax on gain 20% 35% 20% (if over $400,000, 15% if less) 0%
Medicate tax at 3.8% rate Not necessarily No No 0%
Files tax returns in personal name Not necessarily No, but need to disclose foreign shareholders and related party transaction Always No
Excess interest expense carries forward to offset gain from sale. Yes Yes Yes, but limited No
30% withholding tax on related party interest payments No Yes, unless treaty jurisdiction lender No No
Limits on deductibility of interest expense Yes (90%) Yes (60%) Yes (80%) No
Estate tax protection No Yes No Yes


Distribution creates additional withholding No Yes No No


Your comments and suggestions are always welcome!

Please contact us to find out if this type of structure is right for you.


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

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