Inside and Outside PPLI

Academics Teach Us a Lesson

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Part 4

The magic comes once assets are inside the PPLI policy. This magic is partly due to what occurs outside the PPLI policy. We likened this in Part 2 and Part 3 to the “wind and rain.” Let us define this “wind and rain” in terms of tax policy, and compare it to the benefits of using a properly structured PPLI policy.

By using rigorous methods of analysis, tax academics can bring to light flawed tax legislation. Tax academics are not under the same political pressures as those who make the tax laws. We will look at two studies in this realm of what we are calling the “wind and rain.”

The first study isThe Impact of Soda Taxes: Pass-through, Tax Avoidance, and Nutritional Effects” by  Stephan Seiler, Stanford University: Anna Tuchman, Northwestern University, and Song Yao, University of Minnesota. Draft: February 21,  2019.

The interesting conclusion of this study is that the so called Soda Tax is harmful to the very group of people that it was originally designed to help!

The study reaches this conclusion:

“We use detailed supermarket scanner data from a large set of stores in Philadelphia to evaluate the impact of a sweetened beverage tax on nutritional intake and consumer welfare. Our findings suggest that the tax was almost fully passed through at most stores. While there is some decrease in the aggregate consumption of taxed beverages, the magnitude of the decrease is reduced considerably because consumers avoid the tax by cross-shopping. As a consequence, the reform does not lead to an improvement in terms of the consumption of healthier beverages, it has little impact on nutritional intake, and it is limited in its ability to raise revenue. Finally, it imposes a relatively larger financial burden on low income / high obesity households that are less likely to engage in cross-shopping at stores outside of the city.

These results relate to a broader discussion about the optimal design of policies that are intended to encourage changes in consumer behavior. First, our results suggest that consumers have strong preferences for taxed beverages relative to healthier alternatives, and these preferences are not easily altered. Our data spans almost two years after the tax, and we don’t find evidence that cross-shopping decreases over time, so it is therefore unlikely to be a short-term effect.

Second, our analysis shows that in order to be e↵ective, taxes must be imposed in a way that makes them hard to evade. Highly localized taxes make it relatively easy for consumers to seek alternatives. This kind of tax evasion behavior has been documented for other kinds of local taxes as well, including cigarette and liquor taxes (Barker et al. (2016); Beard et al. (1997)).

Finally, while we would expect low income households to generally be more price sensitive, our results also show that low income consumers are less likely to avoid the tax through cross-shopping. The latter effect is so strong that it leads to a lower reduction in quantity (for the same price increase) in low income areas in Philadelphia. Generally, taxes on grocery items tend to be regressive due to the fact that such goods constitute a larger share of expenditure for low income households (Bureau of Labor Statistics (2015); Wilson et al. (2016)).

The differential behavior with regards to tax avoidance that we document constitutes an additional driver that makes the tax regressive. Hence, fully understanding the impact of the tax across the income spectrum is important to correctly quantify distributional consequences.”

Our second example of “wind and rain,” or what happens outside the magic of a PPLI policy, is “Taxation and Innovation in the 20th Century” by  Ufuk Akcigit, John Grigsby, Tom Nicholas, and Stefanie Stantcheva, January 22, 2019.

“There is an negative effect to taxing successful individuals and corporations in terms of stifling innovation. We quote from the Abstract of this study, “This paper studies the effect of corporate and personal taxes on innovation in the United States over the twentieth century. We use three new datasets: a panel of the universe of inventors who patent since 1920; a dataset of the employment, location and patents of firms active in R&D since 1921; and a historical state-level corporate tax database since 1900, which we link to an existing database on state-level personal income taxes. Our analysis focuses on the impact of taxes on individual inventors and firms (the micro level) and on states over time (the macro level). We propose several identification strategies, all of which yield consistent results: i) OLS with fixed effects, including inventor and state-times-year fixed effects, which make use of differences between tax brackets within a state-year cell and which absorb heterogeneity and contemporaneous changes in economic conditions; ii) an instrumental variable approach, which predicts changes in an individual or firm’s total tax rate with changes in the federal tax rate only; iii) event studies, synthetic cohort case studies, and a border county strategy, which exploits tax variation across neighboring counties in different states.

We find that taxes matter for innovation: higher personal and corporate income taxes negatively affect the quantity and quality of inventive activity and shift its location at the macro and micro levels. At the macro level, cross-state spillovers or business-stealing from one state to another are important, but do not account for all of the effect. Agglomeration effects from local innovation clusters tend to weaken responsiveness to taxation. Corporate inventors respond more strongly to taxes than their non-corporate counterparts.”


What gives PPLI this magical power

We began our Part 4 by introducing magic. What is magic? Wikipedia defines it as “making something appear or disappear before your eyes, and you don’t know quite how it happened.”

This is key to PPLI structuring, and the continued reason why it is underutilized. How can a life insurance policy accomplish so much for the assets of wealth persons? Because it is life insurance, but functions more like a Super Trust. Here is a comparison.

Trust and Insurance Comparison


  • Contractually based and used by millions
  • Tax deferral
  • Insurance company is beneficial owner
  • Simplified or limited reporting
  • Potentially tax free
  • No capital gains taxes
  • No trustee
  • Asset protection


  • Provides some asset protection
  • Sometimes seen as a tool for the rich
  • Requires “trustee” with full control
  • More stringent reporting requirements
  • Tax filings for trust and possibly beneficiaries required by some jurisdictions

In other words, assets that don’t have the security and certainty of being inside a properly structured PPLI policy and using the six principles of Expanded Worldwide Planning (EWP) are cut off from the magic and must remain outside in the “wind and rain.”

From the 20th century writer, Roald Dahl, here is another look at magic that describes what is possible with PPLI structuring:

“And above all, watch with glittering eyes the whole world around you because the greatest secrets are always hidden in the most unlikely places. Those who don’t believe in magic will never find it.”

The overarching principle of PPLI structuring is EWP which is comprised of the six principles below.


EWP gives privacy and compliance with tax laws. It also enhances protection from data breach and strengthens family security. EWP allows for a tax compliant system that still respects basic rights of privacy. EWP 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.

Asset protection

EWP 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 the policy.

Succession planning

EWP includes transfers of assets without forced heirship rules directly to beneficiaries using a controlled and orderly plan. This element of EWP 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.

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.

Compliance simplifier

EWP adds ease of reporting to tax authorities and administration of assets, commercial substance to 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.

Trust substitute

EWP 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.

If you are just using trusts, foundations, and various corporate entities in your planning, you are out in the “wind and rain.” Is it not time that you embraced this simple yet fully tax compliant tool? Let us know how we can take you inside the comfort zone of being fully tax compliant and the proud possessor of the six principles of EWP. Please call us today!


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

Michael Malloy-CLU-TEP







#ppli #privateplacementlifeinsurance #michaelmalloy