PPLI: Uses Non-Disruption to Achieve Disruption
Private Placement Life Insurance (PPLI Category in our blog) shares a key element with so-called disruptive companies–innovative efficiency. This is expressed in the likes of companies such as Uber and Airbnb. Uber can be thought of as the world’s largest taxi service, but they own no vehicles. Airbnb has been called the world’s largest hotel, yet they do not own hotel buildings.
They both offer a new approach to common needs: transportation and lodging services. PPLI offers just such a structure for wealthy international families–an efficient tax-free environment for their assets.
One outstanding difference between PPLI and disruptive companies is that PPLI uses what might be called a retro structure, life insurance. We can then also call it a non-disruptive structure that offers benefits that far exceed those of many planning techniques for wealthy international families. What are these outstanding benefits:
- All assets inside the PPLI policy receive tax deferral, not only investments, but business income too.
- The assets pass tax-free to the beneficiaries named in the PPLI policy. In a properly structured policy one creates a tax-free environment for these assets. Assets can be located anywhere in the world.
- Because life insurance is used, FATCA and CRS reporting is greatly simplified, and in some cases, is eliminated.
- Families receive enhanced privacy, because the insurance company becomes the beneficial owner of the assets inside the PPLI policy.
- The PPLI structure provides excellent asset protection.
- The PPLI structure is low cost with fees averaging 1% of assets.
- The PPLI structure is fully compliant with the tax authorities of all tax jurisdictions.
- Should an untimely death of the wealth creator occur, his family is protected with a tax-free PPLI death benefit.
A recent example from the financial world, which has similarities Uber and Airbnb, caught our attention this week, courtesy of The Wall Street Journal by Maureen Farrell and Liz Hoffman:
Ex-bankers from Goldman Sachs, JPMorgan hang out shingles to advise companies on securities offerings
The social-media company also called Vijay Culas, who works out of rented office space on a busy stretch of highway in San Mateo, Calif.
A former Goldman Sachs GS +1.06% Group Inc. banker who hung out a shingle in 2014, Mr. Culas helped Twitter negotiate with its banks and ultimately sell a type of hybrid bond for a 1% fee, one of the cheapest offerings in recent memory.
Mr. Culas is among a handful of upstart advisers who are challenging investment banks on turf once thought impenetrable: the $7 billion-a-year business of handling complex stock-related transactions.
Our non-disruptive approach to planning for wealthy international families is expressed in our embrace of Expanded Worldwide Planning (EWP). In the Wikipedia page International tax planning, you will find both the history of EWP and its key elements.
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