EWP and PPLI Archives - blog - Michael Malloy Solutions

The 80/20 Rule

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The 20% Is Yours With PPLI

In terms of structuring assets for wealthy international families, Private Placement Life Insurance (PPLI) puts you at the top of your class. What is top of your class? Let us apply the 80/20 rule.

Wikipedia gives us a brief history of the 80/20 rule.

The Pareto principle (also known as the 80/20 rule, the law of the vital few, or the principle of factor sparsity) states that, for many events, roughly 80% of the effects come from 20% of the causes.

Management consultant Joseph M. Juran suggested the principle and named it after Italian economist Vilfredo Pareto, who noted the 80/20 connection while at the University of Lausanne in 1896, as published in his first work, Cours d’économie politique.

Essentially, Pareto showed that approximately 80% of the land in Italy was owned by 20% of the population.

It is an axiom of business management that “80% of sales come from 20% of clients”. Richard Koch authored the book, The 80/20 Principle, which illustrated some practical applications of the Pareto principle in business management and life.

Expanded Worldwide Planning (EWP) is the overarching principle that our firm embraces that is becoming a new model for those who structure the assets of wealthy international families. If we define success as the 20% part of the 80/20 equation, what are these characteristics that assist in this success:

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 EWP structure provides excellent asset protection.
The EWP structure is low cost with fees averaging 1% of assets.
The EWP 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.

80/20 In Action

According to a recent report on CNBC, just three stocks are responsible for most of the market’s gain this year. Amazon, Netflix, and Microsoft together are responsible for 71% of S & P 500 returns and for 78% of NASDAQ 100 returns. Not quite 80/20, but the principal is there.

Now let see how the 80/20 plays out more personally in our daily lives. If you have had the experience of working closely with a group of people over a long period of time, you find out their strengths and weakness and your own.

You find that that some do things well in some areas and not so well in others–and if you are honest with yourself–this applies to observations about yourself too. So if we take the 80/20 rule as our guide, we are grouped into the 80% part or the 20% part, depending on the task or character trait that we are measuring.

Our firm must conduct diligent research to achieve the aims of the families that approach us for PPLI structuring. We must find the best possible way to give them the tax and enhanced privacy benefits that they seek. Our goal at the end of our research, is to place the family in the 20% part of the equation.

We wish to elevate you to the 20% through our rigorous and thorough PPLI structuring process. We invite you to contact us today so we can begin the process now.

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

Privacy Flows with EWP and PPLI

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GO WITH THE FLOW

“Go with the flow” can have several meanings, and oddly enough, in the context of Expanded Worldwide Planning (EWP) it can pertain to privacy. As our firm specializes in structuring for international clients using Private Placement Life Insurance (PPLI), we will discuss two recent news articles and how they relate to securing privacy, as well as full compliance, for families involved in international tax planning. The articles are interesting in themselves, and we have used them to make a few points related to our topic.

Because PPLI is issued under a variable universal life insurance contract, the insurance company becomes the beneficial owner of the assets inside the policy. When reporting to the tax authorities of the jurisdictions involved with the policy, the insurance company becomes the owner of the assets inside the policy, even though the assets are held in separate accounts for the benefit of the owner of the assets. It is the goal of EWP to secure as much privacy for clients that is allowable under law, and still be fully compliant with tax authorities worldwide.

Now back to our new articles and “going with the flow.” In a certain sense, the flow of information and the flow of wealth is akin to plumbing. As long as things flow, in the direction intended there is not a problem. When things begin to backup or flow in the wrong direction, we encounter problems.

Our first news article discusses the movement of families within the U.S. to states with no or little state income tax, and how the states that have high state income taxes like New York and California are unprepared for the loss of these tax dollars. The point is also made in the article that the states like Florida and Texas that are receiving the migrating families are also unprepared for the influx of new people in their states. In our analogy, we have a situation here where things are flowing in a direction that is not intended.

Here are a few of the salient points courtesy of the Wall Street Journal by Arthur B. Laffer and Stephen Moore, “So Long, California. Sayonara, New York.”

“Since 2007 Texas and Florida (with no income tax) have gained 1.4 million and 850,000 residents, respectively, from other states. California and New York have jointly lost more than 2.2 million.”

“As the migration speeds up, it will raise real-estate values in low-tax states and hurt them in high-tax states.”

“Despite its shrinking tax base, New York spends nearly twice as much on state and local government per person ($16,000) as does economically booming Tennessee ($9,000).”

Our second news article is about the flow of information, and a possible unintended consequence of regulating it. Perhaps the pipes have been put at the wrong angles, or in the wrong place?

Again, from the Wall Street Journal by Steve Rosenbush, “The Morning Download: Europe’s New Privacy Rule, in Unexpected Twist, Helps Facebook, Google.”

The main point of the article is contained in these two quotes:

“The EU will begin enforcing the General Data Protection Regulation, “which in many cases require companies to obtain affirmative consent to use European residents’ personal information,” the Journal’s Sam Schechner and Nick Kostov report”

“Google and Facebook, using their scale and sophistication, “are applying a relatively strict interpretation of the new law, competitors say—setting an industry standard that is hard for smaller firms to meet,” the Journal reports.”

How does our discussion of “go with the flow” pertain to the benefits of using EWP and a properly constructed PPLI policy to provide privacy? In the first article, the families were moving to save significant tax dollars. Inside the privacy protection of PPLI, there is a similar movement, as the assets inside the policy, if structured correctly, are in a tax-free environment. Like the families in question, they have gone from a high tax situation to a no tax situation–if they moved to Florida and Texas where there is no state income tax.

The new privacy regulations in the second article that favor companies like Google and Facebook show how laws change over time, and when the laws change, it affects the companies subject to the regulation. One favorable element of using PPLI for structuring is that it is subject to the insurance regulations of the tax authorities involved in the policy structure. Insurance regulation tends to be much more simple and straightforward than tax codes, and this greatly favors families in their planning.

The insurance codes in most countries are also less subject to change than the tax codes. Insurance is also considered a vehicle that benefits the whole society. EWP structures enjoy the simplicity that insurance affords.

Our firm is here to assist you in “going with the flow” in the right direction, so please let us know your needs, and so we can find out if your situation is right for EWP and PPLI.

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

PPLI and Cryptocurrency-Together A Winner

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Expanded Worldwide Planning (EWP) Embraces Change

Updated

Properly structured Private Placement Life Insurance (PPLI) gives the assets inside the policy tax deferred growth for the life of the policy. When the insured life/lives under the policy pass on, the assets pass as a tax-free death benefit to the beneficiaries under the policy. If some of the assets inside the policy are cryptocurrencies, they also receive this tax-advantaged treatment. Essentially PPLI is more of an income tax and estate tax planning tool than it is a product. Many asset classes are supported in an open architecture EWP structure.

We will discuss some more basics on structuring with PPLI in the context of EWP, then, something more on how cryptocurrencies and PPLI both occupy a similar space on the international scene for wealthy clients.

Any asset that can be custodied by a reputable trust company can go into the PPLI structure. Many policies are owned by trusts which can be domiciled in jurisdictions in keeping with the client’s planning needs. In terms of asset management, it is an open architecture model where the assets can be located in multiple jurisdictions with multiple asset managers. PPLI insurance costs generally average about 1 percent of the cash value of the policy, over the life of the policy.

The cost of the death benefit varies with the health and age of the insured person, and generally policies are designed with the lowest death benefit possible. Tax and enhanced privacy benefits outweigh the costs of using a PPLI structure. Asset management fees will depend on the asset manager(s) selected to manage the assets inside the policy. The policy is fully transparent to the client, as all fees and costs are disclosed.

How are cryptocurrency, EWP, and PPLI similar? All three have qualities that a wealthy homeowner would be looking for in an ideal home: architectural elements that truly “speak” to the owner; privacy; a climate that suits the owner; and a sense of security, both emotional and physical. These may seem like strange bedfellows, but what we all seek in the world, whether it is a home or a structure for our financial affairs, can be quite similar in nature.

We will illustrate this point by a few recent news items about cryptocurrencies:

Courtesy of Anne Kadet in The Wall Street Journal.

“NewYorkCoin, created in 2014 by an unknown developer, has enjoyed a surge of support in recent months. More businesses are accepting the currency and there’s a growing interest among cryptocurrency developers. There’s even a new Meetup group where enthusiasts who frequent online forums can gather in person to discuss their altcoin adventures.”

We all enjoy having a local identify and simultaneously having the sense of belonging to something larger than ourselves. The NewYorkCoin, EWP, and PPLI have these characteristics. The open architectural elements of EWP and PPLI can incorporate both the local and international in a structure that speaks to the client’s individual planning needs.

Courtesy of Mateo Jarrin Cuvi of Taxlinked.net.

“Israel’s tax authorities have decided to classify Bitcoin & other cryptocurrencies as property instead of currencies. How will this affect their taxation?”

We are not qualified to comment on the taxation issue, but wish to use this invitation post comments to raise a salient point: the use of blockchain technology as the basis for a currency throws into question the very nature of what constitutes a currency. Or put another way, in the future will currency continued to be issued by governments or by individuals? The answer to this question is being played out currently on the world stage. In the meantime, if you are concerned about the tax on cryptocurrencies, you can use a properly structured PPLI policy to shield the tax.

For some readers we may have stretched some analogies, but hopefully we have equally stretched your minds on our topics. We appreciate your comments and are thankful for your continued trust and support.

Learn more: The EWP Stories Video Series – CRYPTO-PPLI and EWP – Episode 1

by Michael Malloy, CLU TEP RFC.
CEO, Founder @EWP Financial