Questions and Answers from the book “The Wit and Wisdom of Professor PPLI: How to Achieve Exceptional Asset Structuring with Private Placement Life Insurance”
~ by Michael Malloy, CLU, TEP RFC
Nothing Is Impossible
PPLI: Under Higher Laws
Section 3, Part 3
Professor PPLI, attitudes toward a subject are a powerful force in how people perceive the subject. These attitudes are also sometimes hard to change. How does this relate to PPLI?
If you study the history of science, you can readily see how once a long held belief or attitude is changed, it becomes a new paradigm that awaits another future paradigm shift. What was thought impossible becomes possible.
A similar phenomenon exists in sports with world records. Take Roger Bannister breaking the four minute mile record. In a sense, once the barrier is broken, others are given permission to accomplish the same feat. Again, the impossible becomes possible.
In the world of PPLI, I see a paradigm shift coming for professional trustees’ attitudes towards PPLI asset structuring. Professional trustees can be distrustful at first hearing of these structures, because they think they will lose control of the assets. Exactly the opposite is the case.
When assets are placed in a PPLI structure, the insurance company takes over the administration of these assets, but leaves the trustee in ultimate control. This relieves the trustee of many routine tasks, but the trustee retains their role as the ultimate decision maker, since they are the owner of the policy. They are even free to switch insurance companies, if the administration of the assets is not to their liking.
In a Wealthmanagement.com article, “Private Placement Life Insurance Primer, Recent tax law changes make for a particularly interesting time to explore PPLI,” Brian Gartner and Matthew Phillips explain why some trustees are particularly attracted to PPLI.
“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.”
Lastly, assets within a PPLI structure are frequently held for the long term, usually until the death of the insured person, thus, the trustee can be assured of controlling the assets for a long time period.
The title of this section is “Nothing Is Impossible.” This is a big statement. What relevance does this have to PPLI?
To solve issues in the world of international asset structuring, it is sometimes necessary to ask the simple, yet sometimes profound, questions that come from children: why is the sky blue? And where was I before I was born?
At Advanced Financial Solutions, Inc., we ask ourselves one simple question at the beginning of each client engagement:
How can we achieve the maximum amount of tax efficiency, asset protection, and privacy for this family?
Our picture in the book is telling for the answer to this question. Nobody has told the mountain goats in this picture that what they are doing is extremely dangerous and they can fall to their peril at any point.
Our task at Advanced Financial Solutions, Inc. is not so dramatic, but we do endeavor to achieve what might seem impossible by conventional structuring methods. How do we accomplish this? By engaging you with simple questions that bring about the answer to the important question posited above.
Ironically, our international PPLI structuring techniques are usually far more conservative than the complex trust structures that clients frequently bring us to review. Sometimes they have spent weeks pondering over this overly complex structure and still do not understand them.
We treat each of our cases as a blank canvas that confronts each painter at the beginning of a painting project. Our goal is to paint, read structure, a picture that gives a family all they desire in the realm of tax efficiency, asset protection, and privacy.
Professor PPLI, how is PPLI similar to the popular phrase, “to hide something in plain sight?”
The key to this question lies in two words–life insurance. Most all life insurance policies in most jurisdictions throughout the world offer all or some of these benefits:
- Tax-deferred growth of internal cash value
- Tax-free 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
PPLI now adds these benefits:
- Invest in almost any asset class
- Increased asset protection as insurance company becomes beneficial owner of assets in the policy
- Simplified reporting and privacy as only total cash value is reported
- Policy can hold CFC’s and PFIC assets on a tax-deferred basis
- Excellent vehicle to hold real estate
- Provided a stable, globally recognized structure for tax authorities
Most attorneys, asset managers, trustees, and accountants have received no formal education in PPLI international asset structuring, and their professional societies have scant knowledge on the subject. After they drop their frequent preconceived prejudices against life insurance, and study the subject of variable life insurance, and the tax code that supports it, they usually have two reactions.
One, is they are astounded that they have not been using this simple and conservative method from the beginning of their practice. Or, two, they think it is too good to be true and reject it, because it does not conform to the methods that most of their peers use in the field of international asset structuring.
At Advanced Financial Solutions, Inc. we encourage you to take the path of the first reaction. To that end, we appreciate your questions and comments. Please give us your thoughts on PPLI international asset structuring.
by Michael Malloy, CLU TEP RFC, @ Advanced Financial Solutions, Inc
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