PPLI and Pre-immigration Planning

Top Three Important Factors

Pre-immigration tax planning using a properly structured PPLI policy prior to a permanent move to the U.S. can be effective in shielding the assets inside the policy from US taxation for income, gift, and estate taxes. For temporary stays in the U.S., using a Private Placement Deferred Annuity (PPDA) can be highly effective and easier to implement.

The first factor may often be overlooked: find the best immigration attorney possible. Your specific immigration status is a large factor in determining your tax status. United States immigration laws are very complex, but within their complexity lies a tremendous opportunity to live, work, study and/or invest in the US in ways that minimize US income and/or estate tax consequences as well as risk.
Often, the most evident approach to immigration is not the most desirable. For wealthy individuals and families, any discussion regarding US immigration issues should include appropriate wealth planning and tax counsel. An expert immigration attorney will be able to properly coordinate with PPLI planning to achieve the best planning result possible.

The second factor runs contrary to tax laws in most other countries: the concept of U.S. residency for Federal income tax purposes is different from that for Federal gift and estate tax purposes. This is because residence for income tax purposes is determined by reference to one’s residency while residence for estate and gift tax purposes is determined with reference to one’s domicile. Consequently, an individual can be a tax resident for income tax purposes but not for estate and gift tax purposes and vice versa.

There is currently legislation being considered in the U.S. Congress and Senate that may alter these laws, but this is the situation presently. A properly constructed PPLI policy provides tax-deferral for the assets inside the policy. In most cases, the policy passes the assets to the named beneficiary as a tax-free death benefit. PPLI is an excellent tax vehicle to create maximum tax efficiency.

NRA’s Can Use PPLI

The third factor to consider addresses an individual who is neither a resident nor a citizen of the U.S. (referred to here as a “non-resident alien” or “NRA”) who is presented with an opportunity to invest in U.S. real estate, tangible property such as art or collectibles that will be located in this country, stock of a U.S. company, or as a partner in a limited partnership or member of a limited liability company (“LLC”).

Typically, the savvy NRA investor knows what he must do to avoid being treated as a U.S. resident for income tax purposes. But, he may not be aware that these investments could attract one of the three federal transfer taxes, namely, the federal gift tax, estate tax, and generation-skipping transfer (“GST”) tax.

There are various PPLI structures that can be used to mitigate the taxation described above for the NRA. Each of these structures would be tailored to the type of investment, insurance regulations in the NRAs home country, holding period of the investment, and the timing of the liquidity event of the insured person(s).

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

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