Overcoming Obstacles Gracefully

Let PPLI Show the Way

Private Placement Life Insurance (PPLI) is a vehicle to overcome obstacles for structuring assets for wealthy international families. This is greatly aided by the concept of Expanded Worldwide Planning (EWP). Sometimes inspiration is necessary to overcome obstacles. To find this inspiration look no further than the remarkable life of Helen Keller. We will learn more about her amazing life later on, but first, let us focus on EWP.

We find the definition of EWP in the Wikipedia page International tax planning. Here is the opening paragraph:

International tax planning also known as international tax structures or expanded worldwide planning (EWP), is an element of international taxation created to implement directives from several tax authorities following the 2008 worldwide recession.

Further explanation is given in the Principles section:

EWP allows a tax paying entity to simplify its existing structures and minimize reporting obligations under the Foreign Account Tax Compliance Act (FATCA) and CRS. At the heart of EWP is a properly constructed Private placement life insurance (PPLI) policy that allows taxpayers to use the regulatory framework of life insurance to structure assets along the client’s planning needs.

These international assets can also comply with tax authorities worldwide. EWP also brings asset protection and privacy benefits that are set forward in the six principles of EWP below. The other elements in the EWP structure may include the client’s citizenship, country of origin, actual residence, insurance regulations of all concerned jurisdictions, tax report requirements, and client’s objectives.

Planning with trust and foundations frequently offer only limited tax planning opportunities, whereas EWP provides a tax shield. Adding a PPLI policy held by the correct entity in the proper jurisdiction creates a notable planning opportunity.

The Six Principles of EWP

To address the obstacles in structuring assets for wealthy international families, these six principles are incorporated in the solution to produce the best possible planning outcome for the family.

Privacy

Asset Protection

Succession Planning

Tax Shield

Compliance Simplifier

Trust Substitute 

The Life of Helen Keller

We return to Wikipedia for this summary of the remarkable life of Helen Keller:

Helen Adams Keller (June 27, 1880 – June 1, 1968) was an American author, political activist, and lecturer. She was the first deaf-blind person to earn a bachelor of arts degree. The dramatic depictions of the play and film The Miracle Worker made widely known the story of how Keller’s teacher, Anne Sullivan, broke through the isolation imposed by a near complete lack of language, allowing the girl to blossom as she learned to communicate. Her birthplace in West Tuscumbia, Alabama, is now a museum and sponsors an annual “Helen Keller Day”. Her birthday on June 27 is commemorated as Helen Keller Day in the U.S. state of Pennsylvania and was authorized at the federal level by presidential proclamation by President Jimmy Carter in 1980, the 100th anniversary of her birth.

Thankfully in our EWP and PPLI structuring we do not face the tremendous challenges faced and overcome so gracefully by Helen Keller. She can serve as a model for all of us for what is possible in the face of extreme difficulty. As always, we welcome your comments and questions.

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

 

 

Michael Malloy, CLU, TEP

 

 

 

 

Your Pot of Gold Under the Rainbow

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:

“Upstarts Crash Wall Street’s $7 Billion Capital-Markets Party”

Ex-bankers from Goldman Sachs, JPMorgan hang out shingles to advise companies on securities offerings

When Twitter Inc. TWTR -1.07% was looking to raise $1 billion from investors earlier this month, it put out the usual calls to Wall Street banks.

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.

We welcome your inquiries. Our worldwide staff is here to serve your planning needs.

Please contact us today to discuss your own unique situation.

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

 

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Chinese + Investor Control + PPLI = Success

Part II: EWP Chinese Case Study

Expanded Worldwide Planning (EWP) with the right fact pattern can deliver a Private Placement Life Insurance Policy (PPLI) which gives clients the control they wish.  In the much discussed Webber v. Commissioner, U.S. Tax Court case, the policy issued by the offshore company had a 953(d) election, therefore, the issues of investor control and diversification were of paramount importance.  What if the PPLI policy had been a non-953(d) issued PPLI policy?

For international clients with no connection to the U.S., a non-953(d) policy suits their needs perfectly.  So where does that leave us on the investor control issue?  It eliminates it, along with the diversification requirement under the U.S. tax code.  Why?  Because, if the insurance company was domiciled in Barbados, we are using the Barbados tax and insurance code. For this jurisdiction there are no investor control and diversification requirements.

Let us use a Chinese family as a case study.  Mr. Lee’s wealth had been generated from steel manufacturing in China. Over the years he has used various offshore structures.  Mr. Lee is now concerned with CRS and the fact than these offshore structures will now be reported to Chinese tax authorities.  Using EWP and a properly structured PPLI policy, the insurance company will become the beneficial owner of the assets inside the PPLI policy.

If ties develop to the U.S. through Mr. Lee’s daughters, who are attending school in the U.S., we can also issue a 953(d) PPLI policy to benefit them and shield them from tax. By using an EWP structure, Mr. Lee and his family can keep their affairs private, tax efficient, and tax compliant.

Now back to the Webber case. The most comprehensive article on investor control, as it pertains to PPLI policies, that I have read is by Steven Horowitz. The article is impressive both in terms of the detailed analysis of investor control, and the conclusions that Mr. Horowitz reaches.  We quote one of his key points below, and invite you to read the full article,

“I truly believe that the Service should have lost the case on the issue of investor control, but not because of the fact that the investor/ Taxpayer did not exercise too much control. Rather, the case should have been decided based upon the one major point of law, namely: Jeffrey T. Webber did not own the policy. The body of case law and revenue rulings, right or wrong, provides that it is the “policyholder/ owner of the contract” (See, Rev. Rul. 82-54, 1982 C.B. 11), must be the one who has exercised the excessive control over the investments within the contract. The Code provisions and historical body of tax law which govern the tax treatment of life insurance policies and annuity contracts provides in pertinent part as follows in a very clear fashion, the relevant language is as follows: the Policy Holder and owner of the contract are the parties who may not exercise an overabundance of control over the investments within the contract. As Mr. Webber was not the owner of the policy or policyholder (without application of the grantor trust rules), then the Court could not reach the conclusion that it reached without first dealing with the issue of grantor trust status (which would have made Mr. Webber the “Owner” for all federal income tax purposes), (See Rev. Rul. 85-13, 1985-1 C.B. 184).”

Most wealth owners wish structures where they maintain control of their assets. They also wish to keep their affairs private, tax efficient, and tax compliant. Using EWP and a properly structured PPLI policy, it is possible to achieve all these aims.

Please let us know how we can assist you in using these structures.  Our experienced staff is here to serve you.

 

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