Did You Know This About PPLI & EWP? – Episode 4 – Life Insurance: The Magic Ingredient

#PPLI & #EWP FUNDAMENTALS

Did you know this about Private Placement Life Insurance and Expanded Worldwide Planning?

Private Placement Life Insurance (PPLI) In Action

EWP and PPLI: A Unity of Assets and Life Insurance

To truly appreciate what Private Placement Life Insurance (PPLI) can accomplish, you first must forget everything you currently know about life insurance. Yes, it is life insurance, but so radically different in cost and benefits, it has its own Wikipedia page, International Tax Planning.

On this page, you will read about the six principles of Expanded Worldwide Planning (EWP). We give you a short description of these six principles from the Wikipedia page later in this article.

First, let us list the key benefits of PPLI, so you can appreciate why Bloomberg said in a recent article:

“Athletes, celebrities, and family offices are embracing private placement life insurance, or PPLI, as a way to preserve wealth for their heirs. It’s a strategy that’s perfectly legal and has existed for decades.”

This is why Bloomberg is so excited about PPLI. In a properly structured policy:

  • All cash value growth grows tax-deferred, and is paid out as a tax-free death benefit;
  • No income taxes, and this includes capital gains tax;
  • Ability to access the cash value through tax free loans;
  • Adds asset protection and privacy;
  • Limited reporting;
  • Ability to avoid estate taxes;
  • No surrender charges.

An outstanding singular feature that catapults PPLI above any other life insurance policy is that all asset classes can be placed in a policy:

  • Real Estate/Physical assets
  • Hedge Funds/Alternative Asset classes
  • Private Equity
  • Intellectual Property
  • Art
  • Yachts and Private Jets
  • Alternative Currency denominations

Now let’s discuss the low-cost of this unique wealth structure tool. Depending upon the assets inside the policy, the total fees for a PPLI are 1-2% of the asset value in the policy. The cost of insurance charges are institutionally priced at the wholesale reinsurance company rates.

The death benefit is insured with these same reinsurance companies, the largest insurance companies in the world like Swiss Re and Munich Re with trillions of dollars in assets.

“To be eligible for a PPLI policy one must generally be what the SEC terms a Qualified Purchaser, having not less than $5M of investments. Most companies’ minimum premiums are also $5M.”

From the Wikipedia page, International Tax Planning, we give you the six principles which are making PPLI such a sought after wealth structuring technique.

Privacy

EWP gives privacy and compliance with tax laws. It also enhances protection from data breach and strengthens family security. EWP allows for a tax compliant system that still respects basic rights of privacy. EWP addresses the concerns of law firms and international planners about some aspects of CRS related to their clients’ privacy. EWP assists with the privacy and welfare of families by protecting their financial records and keeping them in compliance with tax regulations.

Asset protection

EWP protects assets with segregated account legislation by using the benefits of life insurance. This structure uses asset protection laws in the jurisdictions of residence to shield these assets from creditors’ claims. A trust with its own asset protection provisions can still receive additional protection with the policy.

Succession planning

EWP includes transfers of assets without forced heirship rules directly to beneficiaries using a controlled and orderly plan. This element of EWP provides a wealth holder a method to enact an estate plan according to his/her wishes without complying with forced heirship rules in the home country. This plan must be coordinated with all the aspects of a properly structured PPLI policy together with other elements of a wealth owner’s financial and legal planning.

Tax shield

EWP adds tax deferral, income, estate tax benefits and dynasty tax planning opportunities. Assets held in a life insurance contract are considered tax-deferred in most jurisdictions throughout the world. Likewise, PPLI policies that are properly constructed shield the assets from all taxes. In most cases, upon the death of the insured, benefits are paid as a tax free death benefit.

Compliance simplifier

EWP adds ease of reporting to tax authorities and administration of assets, commercial substance to structures. In addition, the insurance company is considered the beneficial owner of the assets. This approach greatly simplifies reporting obligations to tax authorities because assets in the policy are held in segregated accounts and can be spread over multiple jurisdictions worldwide.

Trust substitute

EWP creates a viable structure under specific insurance regulations for civil law jurisdictions. It also creates a new role for commercial trust companies. In most civil law jurisdictions, trusts are poorly acknowledged and trust law is not well developed. As a result, companies with foreign trusts in these civil law jurisdictions, face obstacles.

Conclusion

A PPLI asset structure is arguably the most efficient structure available today for wealthy families who wish a conservative and efficient structure to integrate tax-free investment growth, wealth transfer, and asset protection.

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

~ Your best source for PPLI and EWP

Michael Malloy-CLU-TEP

 

 

 

 

 

 

 

 

 

 

 

Did You Know This About PPLI & EWP? – Episode 3 – EWP’s Foundation Is The Six Principles

Fundamentals of Private Placement Life Insurance
&
Expanded Worldwide Planning

 

Did You Know This About PPLI & EWP?

EWP’s Foundation Is The Six Principles

Video 3

It makes sense to partner with a concept that is recognized as a cornerstone of financial stability—the six principles of Expanded Worldwide Planning, or EWP for short. The six principles are recognized as such by Wikipedia in its article on International Tax Planning. You too can employ these principles to grow and strengthen your own financial assets. How can you accomplish this? By using an asset structure that has at its very roots the six principles of EWP.

Here is the text from Wikipedia’s article on International Tax Planning which features the Six Principles of EWP

International Tax Planning

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.

History

In 2010, the United States introduced the Foreign Account Tax Compliance Act (FATCA). Later the Organization for Economic Co-operation and Development (OECD) expanded these directives and proposed a new international system for the automatic exchange of information – known as the Common Reporting Standard (CRS). The organization also attempted to limit companies’ ability to shift profits to low-tax locations, a practice known as base erosion and profit shifting (BEPS). The goal of this worldwide exchange of tax information being tax transparency, it requires the exchange of a significant volume of information. As a result, there are concerns about privacy and data breach in interested industries. EWP has been an important element on the agenda of the OECD following the succession of leaked revelations about various jurisdictions, including the Luxembourg Leaks, Panama papers and Paradise papers. In December 2017, European Union finance ministers blacklisted 17 countries for refusing to cooperate in its investigation on tax havens

Principles

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.

Features

Privacy

EWP gives privacy and compliance with tax laws. It also enhances protection from data breach and strengthens family security. EWP allows for a tax compliant system that still respects basic rights of privacy. EWP addresses the concerns of law firms and international planners about some aspects of CRS related to their clients’ privacy. EWP assists with the privacy and welfare of families by protecting their financial records and keeping them in compliance with tax regulations.

Asset protection

EWP protects assets with segregated account legislation by using the benefits of life insurance. This structure uses asset protection laws in the jurisdictions of residence to shield these assets from creditors. A trust with its own asset protection provisions can still receive additional protection with the policy.

Succession planning

EWP includes transfers of assets without forced heirship rules directly to beneficiaries using a controlled and orderly plan. This element of EWP provides a wealth holder a method to enact an estate plan according to his/her wishes without complying with forced heirship rules in the home country. This plan must be coordinated with all the aspects of a properly structured PPLI policy together with other elements of a wealth owner’s financial and legal planning.

Tax shield

EWP adds tax deferral, income, estate tax benefits and dynasty tax planning opportunities. Assets held in a life insurance contract are considered tax-deferred in most jurisdictions throughout the world. Likewise, PPLI policies that are properly constructed shield the assets from all taxes. In most cases, upon the death of the insured, benefits are paid as a tax free death benefit.

Compliance simplifier

EWP adds ease of reporting to tax authorities and administration of assets, commercial substance to structures. In addition, the insurance company is considered the beneficial owner of the assets. This approach greatly simplifies reporting obligations to tax authorities because assets in the policy are held in segregated accounts and can be spread over multiple jurisdictions worldwide.

Trust substitute

EWP creates a viable structure under specific insurance regulations for civil law jurisdictions. It also creates a new role for commercial trust companies. In most civil law jurisdictions, trusts are poorly acknowledged and trust law is not well developed. As a result, companies with foreign trusts in these civil law jurisdictions face obstacles.

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

~ Your best source for PPLI and EWP

Michael Malloy-CLU-TEP

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Metaverse – PPLI and EWP – Episode 1

The Expanded Worldwide Planning Video Series

Our Journey Together: An Exceptional World of Asset Structuring – Episode One

Beyond Facebook and Apple’s Metaverse with PPLI and EWP

Welcome. The metaverse envisioned by companies like Facebook and Apple entails an augmented, virtual reality where users are not just scrolling, posting, and commenting, but interacting in a fully-realized computer-generated world. This type of metaverse is being defined today, but the final outcome is something nobody knows.

The transformative metaverse that an EWP Asset Structure creates for your assets is analogous to one of nature’s most miraculous events: the transformation of a caterpillar into a butterfly. Once your assets are placed into a properly designed EWP Asset Structure, they are shielded from taxation, while simultaneously achieving maximum privacy and asset protection. A stunning financial transformation indeed!

The caterpillar world that your assets previously occupied has been freed into the new reality of the butterfly. Your assets remain the same. What these same assets can achieve for you has been fundamentally altered.

This type of financial metaverse has been in existence in various forms since the 1980s. You don’t have to wait for it to define itself. An EWP Asset Structure creates a new reality for your assets by using a simple and straightforward financial tool–life insurance, in the form of Private Placement Life Insurance, or PPLI for short.

This series of videos introduces you to the Metaverse of EWP Asset Structures and how you can use them to achieve maximum tax efficiency, privacy and asset protection.

As the Forbes article below states, some are calling 2022 the year of the metaverse. With this in mind, we bring you an example of how high-end real estate is working with the metaverse.

ONE Sotheby’s Is Selling The First Real-World Home Through The Metaverse Using NFT Technology

Emma Reynolds,Senior Contributor

I cover home design and luxury real estate.

Some might argue that 2022 is the year of the metaverse, and specifically, metaverse real estate.

Together, ONE Sotheby’s International Realty and Voxel Architects, along with general contractor and NFT collector Gabe Sierra, are introducing the first ever ‘MetaReal’ mansion that includes a real-world home and a virtual counterpart in the metaverse. The virtual home will live within The Sandbox metaverse, a community-driven platform where creators can monetize voxel assets on the blockchain.

The buyer of the NFT asset will also acquire ownership rights of the physical home, set to be completed in Miami in Q4 of 2022. This is the first time something like this has been done.

The home in Miami will be built on a one-acre lot in one of the city’s most prestigious neighborhoods. It will span 11,000 square feet and include seven bedrooms and nine bathrooms. The virtual property will exactly mirror this, and Voxel Architects is helping to create it. The ‘MetaReal’ Mansion will be auctioned off in 2022 at a yet-to-be disclosed reserve price. The exclusive sales agent for the property is Michael Martinez of ONE Sotheby’s, who plans to execute the transaction on the Ethereum blockchain.

The metaverse counterpart of the home will serve as an extension of the real-world home, allowing the buyer to host in-home meetings, events and parties with guests from around the world,” Meta Residence founder Gabe Sierra tells Forbes. “By mimicking the real-world environment of the buyer, we are creating an experience that blends the lines between metaverse and reality. Imagine fighting off a dragon, traversing over a mountain range, and finally arriving at your metaverse property, where you are greeted by your friends who are visiting to check out your new Bored Ape NFT. After interacting in your virtual living room, you exit the metaverse, and you are now sitting inside that same real-world house. That is the experience we are creating.”

NFTs as they pertain to real estate are relatively new, and for those who have a hard time making sense of the concept, you’re not alone. In short, the metaverse is a virtual world and there are more than one. Facebook, for example, hopes to be the largest. The tech company changed its name to Meta earlier this year.

Please watch our FIRST NFT COLLECTION

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

Michael Malloy-CLU-TEP

 

 

 

 

 

 

 

 

 

Tax Shield 4 – Episode 4 – Part 3 – The EWP Stories Video Series

Tax Shield Video 4 – The Expanded Worldwide Planning Video Series

 International Tax Planning

Introduction

Welcome. As advisors, we concentrate on the ‘shield’ aspect of the term Tax Shield. A Tax Shield is a main principle of Expanded Worldwide Planning, or EWP for short. We will now speak about the ‘tax’ aspect of our subject. What is the history of this thing we wish to shield? Here is a very brief history of taxation, mostly in the U.S. context.

We begin in the ancient world. There is recorded a system of taxation in Egypt around 3000 BC. Oddly enough, the United States was tax-free for much of its early history. This changed at the time of the Civil War, when large debts were incurred to fund the war against the South. In 1913, the 16th Amendment to the Constitution was introduced to pave the way to an income tax.

World War I led to three Revenue Acts that raised tax rates and lowered the exemption levels. The number of people paying taxes in the U.S. increased to 5%.

By 1940, the need for the U.S. to prepare for war and support its allies led to more aggressive taxation. People with incomes of $500 faced a 23% tax and the rates climbed up to 94%. The average annual income at this time was $1,000. By 1945 43 million Americans paid taxes and the yearly receipts were in excess of $45 billion. Today annual tax revenue in the U.S. is approximately $3.7 trillion dollars

In this video we find George Allbirght debating with himself on whether he should proceed with the conservation easement offered by the company, Conservation for Nature. A telephone call from his old college acquaintance Jay Edwards forces a definite decision from George.

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George had spent the last evening researching conservation easements, and concluded that they were a good thing. He had also reviewed his tax situation, and realized that the tax deductions that they offered would reduce his tax bill significantly. Perhaps he should work with Conservation for Nature? He had plenty of land, and they had the years of experience. A good combination, he thought.

Later in the morning, Jack telephoned. He spent nearly an hour telling George that the promoters at Conservation for Nature were crooks, and that George should definitely stay clear of them.

Now George was perplexed. He trusted Jack; they had been good friends ever since their time in Detroit. Jack was giving him very concrete reasons why he should not do business with this company. He decided to reevaluate.

A few minutes after his call with Jack, his cell phone buzzed noisily. He jumped up suddenly. He had survived serving in Afghanistan, that is where he learned to fly a helicopter, but loud, sudden noises were still a problem for him.

“Hello, George?”

“Yes?” George said in a wary tone.

“I am calling you back from Conservation for Nature. I heard in the office that you were interested….”

The voice was no longer polished and sophisticated. The caller was drunk, and George knew who it was. An old college friend of his, they used to go out drinking together. Jay could barely articulate his words.

He knew Jay well. Jay still owed him money. Jay was the kind of guy who would sleep with his best friend’s wife.

Jay was desperately trying to launch into his well rehearsed sales pitch about the company he was doing appraisals—Conservation for Nature, but was hardly intelligible. That was enough for George.

“Good bye, Jay. Don’t ever call me again.”

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Conclusion

In our next video, George is again aboard his state-of-the-art helicopter cruising over his 5,000 acre property. George was safe in the knowledge that he must find a simple and straightforward solution to his tax problem.

If you found this video useful, please give us a Like, and click on the subscribe button below. We look forward to connecting with you in part five of our Tax Shield story. Thank you for watching.

To learn how the wealthiest families in the world conduct their financial affairs, please call +1 530 692 1007, or email us at info@expandedworldwideplanning.com.

At your convenience, we can arrange a call to discuss how our unique blueprint can vastly enhance your asset structure.

Disclaimer

The opinions expressed in this video are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual on any financial structure, investment, or insurance product.

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

Michael Malloy-CLU-TEP

 

 

 

 

 

 

Tax Shield 3 – Episode 3 – Part 3 – The EWP Stories Video Series

Tax Shield Video 3

The Expanded Worldwide Planning Stories Video Series

International Tax Planning

Introduction

Welcome. For real estate investors, there are very substantial benefits to using an asset structure that embodies the principles of Expanded Worldwide Planning, or EWP for short. This is true for U.S. persons and non-U.S. persons alike. A properly designed EWP structure both eliminates tax on rental income and tax on the sale of real estate. This is a very powerful result.

Our video details the disreputable methods used by Conservation for Nature’s appraiser, Jay Edwards. Jay’s inflated appraisals give investors unwarranted tax deductions, while the pressure to achieve these inflated appraisals exact an unhealthy influence on Jay’s life in the form of his increased consumption of alcohol and cigarettes. Jay also finds himself in trouble with the Department of Justice and the Tennessee state real estate appraiser board.

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Part 3

When Jay Edwards began a land appraisal project, he had a single goal—to produce the highest valuation possible. He had had 30 years to hone his skill of inflating appraisals. When he had done retail appraisals at the height of the refinancing boom in the early part of this century, his services were in high demand.

The promoters at Conservation for Nature, want a high valuation, because that in turn produces a large tax deduction for its investors. On one deal in South Carolina, they had acquired a property of 28 acres for $1M, then raised about $9M from investors who bought the property.

The investors made an easement donation based on a claimed value for what the land would be worth if developed as a multifamily resort. Jay’s appraised projection produced a tax deduction of about $39M. The tax write off for investors: $4.00 for every $1 invested.

Of late, the promoters at Conservation for Nature, were pressing Jay for higher and higher numbers. His increased consumption of cigarettes and alcohol was keeping pace with these higher numbers. A number that was going in the opposite direction were his hours of sound sleep. He could not remember when he had last had a restful night’s sleep.

Jay had become a character in an old joke; the one the Mafia hired. It went like this.

The Mafia needed a new accountant, so they interviewed three people. They asked the first interviewee, “How much is 2 + 2?”

“Four,” he answered.

“Sorry, that’s not right,” said the Mafia boss.

They asked the next candidate, “How much is 2 + 2?”

“Four, of course,” he said.”

“That’s not right,” said the Mafia boss.

They asked the third accountant the same question.

He responded, “What number do you want it to be?”

The Mafia boss said, “You’re hired.”

The joke was now becoming stale. Conservation for Nature was being investigated by the Department of Justice. The Tennessee state real estate appraiser board brought a formal complaint against Jay, after a detailed review of one of his easement appraisals found an inflated valuation riddled with errors and omissions.

Threatened with the loss of his Tennessee license, Jay voluntarily surrendered it instead. However, he continued to work for Conservation for Nature in states where the appraiser for a conservation easement was not required to be licensed by the state, and so continued to ply his disreputable trade.

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Conclusion

In our next video, we find George Allbright at crossroads on whether to do business with Conservation for Nature. George is able to firmly decide against doing business with Conservation for Nature after the appraiser, Jay Edwards, telephones George in a very drunk condition. George knew Jay from college days, and describes him as a guy who would sleep with his best friend’s wife.

If you found this video useful, please give us a Like, and click on the subscribe button below. We look forward to connecting with you in part four of our Tax Shield story. Thank you for watching.

To learn how the wealthiest families in the world conduct their financial affairs, please call +1 530 692 1007, or email us at info@expandedworldwideplanning.com.

At your convenience, we can arrange a call to discuss how our unique blueprint can vastly enhance your asset structure.

Disclaimer

The opinions expressed in this video are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual on any financial structure, investment, or insurance product.

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

Michael Malloy-CLU-TEP

 

 

 

 

 

 

 

 

 

 

 

CRYPTO – PPLI and EWP – Episode 3 – The EWP Stories Video Series

Cryptocurrency, Private Placement Life Insurance and Expanded Worldwide Planning

Episode 3

The Expanded Worldwide Planning Video Stories

Introduction

Welcome. Since you have invested in crypto coins and/or tokens you are familiar with the blockchain concept. You are at the forefront of a worldwide, game changing movement, which lately has morphed into NFTs and the metaverse. Throughout the world governments are struggling to define crypto assets. Different governments throughout the world define crypto assets in terms of traditional assets like money, property, a commodity, or an unregulated asset class.

Please take a look to our first NFT COLLECTION

Recently the United States has subjected crypto assets to what some have called the draconian reporting requirements for cash transactions with severe penalties for violations. In our written article, we have excerpts from an article by Simon Chandler of Cointelegraph which details how governments worldwide are working with the classification of crypto assets.

In the first two videos in our crypto asset series, we introduced you to our firm, EWP Financial. This video focuses on three important questions that our most sophisticated investors ask us.

These three questions pertain to any asset class, and they are very pertinent to crypto assets. It is our hope that the answers to these questions will give you the assurance you need to place your own holdings into this simple, straightforward, and very powerful asset structure, an EWP Asset Structure.

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Excerpts from Cointelegraph Article

Money or Assets? How World Governments Define Cryptocurrencies

The world’s governments want to see cryptocurrencies as everything but what they really are.

By Simon Chandler
Cryptocurrencies — what are they? Money? Commodities? Securities? Utility tokens? Or something else? Few national governments seem to be in any kind of agreement on this question, and for now, at least, their divisions have given such currencies as Bitcoin and Ethereum a floating, indeterminate status on the global stage.

As a result, cryptocurrencies lack a single, definite existence, with some nations treating them as money (e.g., Japan, Germany) and others treating them as an unregulated, speculative asset (e.g., Mexico, Denmark), making them the financial equivalent of Schrödinger’s cat. However, as this review of classifications of crypto throughout the world will show, cryptocurrencies are all these things and more, which is why they deserve to be classified by future legislation according their own, unique qualities.

United States: securities, commodities, property, money

As an indication of how difficult it may be for world governments to ever reach a global consensus on the status of cryptocurrencies, it’s worth pointing out that there’s currently little consensus within nations — let alone among them. This is nowhere more evident than in the United States, where five separate agencies have all had their own competing classifications of cryptocurrencies.

First up is the Securities and Exchange Commission (SEC), which — up until June — defined cryptocurrencies in general as securities, meaning assets in which someone invests in the expectation of receiving a return. In March, for example, it issued a public statement indicating that it would regulate anything being traded via an exchange platform as a security.

“A number of these platforms provide a mechanism for trading assets that meet the definition of a ‘security’ under the federal securities laws. If a platform offers trading of digital assets that are securities and operates as an ‘exchange,’ as defined by the federal securities laws, then the platform must register with the SEC as a national securities exchange or be exempt from registration.”

Bitcoin declined by 10 percent following this announcement, yet the statements of other American authorities and agencies differ with the SEC’s assertion that cryptocurrencies are securities. Because, also in March, a New York federal judge ruled that the Commodities and Futures Trading Commission (CFTC) can regulate BTC and other currencies as commodities, putting them on the same level as gold, oil and coffee.

If this wasn’t already confusing enough, the Internal Revenue Service (IRS) has defined cryptocurrencies as taxable property since March 2014, when it declared:

“For federal tax purposes, virtual currency is treated as property.”

Observers would be forgiven for supposing that three separate definitions were enough, yet two additional agencies treat cryptocurrencies as money. The U.S. Office of Foreign Assets Control (OFAC) is the bureau of the U.S. Treasury Department responsible for enforcing economic sanctions, which can include sanctions against certain cryptocurrencies (e.g., the Petro). In April, it announced that it would be treating “virtual currencies” in the same way as fiat currency, making any individual who handled a cryptocurrency covered by an economic sanction liable for prosecution.

Canada, Mexico and South America: commodities, virtual assets, legal tender

Like the U.S., Canada doesn’t regard cryptocurrencies as legal tender. However, its approach to virtual currencies is slightly more unified, with the Canada Revenue Agency (CRA) currently defining them as commodities — a definition which would appear to apply in general throughout most government agencies.

In Mexico, the emphasis is also on cryptocurrencies as commodities. On March 1, the government passed the Law to Regulate Financial Technology Companies, which includes a section on “virtual assets,” — aka cryptocurrencies.

Travelling farther south, the picture is mixed. In Venezuela, the government (in)famously announced the oil-backed Petro in December, and in April, it decreed that the cryptocurrency must become legal tender for all financial transactions involving government ministries.

While classifications of one kind or another generally apply in the above American nations, cryptocurrencies suffer from a partial non-existence in others. In Brazil, the Securities and Exchange Commission (CVM) declared in January that cryptocurrencies cannot legally be classed as financial assets, despite the fact that the Brazilian Revenue Office had previously stipulated in 2017 that they’re to be regarded as such for tax purposes. In Chile, cryptocurrencies are neither securities nor money, although the central bank has recently begun considering specific regulation.

And in Colombia, the Financial Superintendent has also declared that digital currencies don’t count as money or securities, while, for tax purposes, it can be considered a ‘high-risk investment.’

While South America often takes a restrictive stance toward cryptocurrencies, some nations within the continent are slightly more accepting. In Argentina, cryptocurrencies aren’t legal tender and they don’t have any regulation specifically applied to them. That said, they are treated as goods under the terms of the nation’s Civil Code, while a December update to tax regulation classifies them as income derived from shares and securities.

What such variations indicate is that, when it comes to the classification of cryptocurrencies, the economic and political situations of the nations concerned make a difference. The inherent abstractness of cryptocurrencies makes them adaptable in terms of their function, so their particular classification and usage all depends on the political and economic conditions prevailing in a particular nation, and what that nation wants to use them for. This is why, in countries where the national currency and economy are relatively weak — or where freedoms are restricted — cryptocurrencies tend to be denied legal status.

Europe: private money, units of account, contractual means of exchange, transferable value

This tendency becomes more apparent when the status of cryptocurrencies in Latin America is compared with their status in Europe. In Germany, the continent’s biggest economy, Bitcoin has been recognized as “private money” since April 2014.

In the U.K., cryptocurrencies have generally been left undisturbed by regulation, and what’s interesting to note is that the government has recognized that comparing them to pre-existing currencies, commodities, securities or any other financial instrument would be inaccurate. In 2014, its HM Revenue & Customs department wrote:

“Cryptocurrencies have a unique identity and cannot therefore be directly compared to any other form of investment activity or payment mechanism.”

Across the English Channel, France has also held off applying any specific regulation to cryptocurrencies, although it has been making concerted efforts with Germany to propose laws that would be international in scope.

In the Netherlands, the central bank also denies the currency status of Bitcoin and other cryptocurrencies, having written in a January position paper:

“We do not consider cryptos as money.”

In contrast, a Dutch court ruled in March that Bitcoin can be considered a “transferable value,” making it equivalent to property. This bears some resemblance to a definition being worked on by the Italian Ministry of Economy and Finance in a draft decree, which describes cryptocurrencies as a “digital representation of value […] used as a tool of exchange for purchasing goods or services.”

Beyond the EU, Switzerland is perhaps the most significant European nation when it comes to crypto, not least because it has aggressively positioned itself as a desirable place for crypto traders and businesses. In 2014, its federal government published a report in which cryptocurrencies were defined as assets, rather than as currencies or a means of payment. But since then, the landlocked nation has introduced several “regulatory simplifications” in order to attract fintech companies, and it’s in this climate that new approaches to cryptocurrencies have emerged. In November 2017, the regional district of Zug began accepting Ethereum and Bitcoin as payment for administration costs and municipal services, effectively recognizing both as money. It was soon followed by the city of Chiasso (in Ticino), which announced in February that it would start accepting Bitcoin as payment for tax on amounts up to 250 Swiss francs.

Such examples from Europe offer two major takeaways. The first is that EU (and non-EU) nations — much like the U.S. and Canada — are holding back on specific crypto-focused regulation, thereby giving cryptocurrencies the space and time to solidify into definite, stable forms. As such, nations are reluctant to attribute any single ‘definition’ or ‘status’ to digital currencies. Correspondingly, the current application of numerous different categorizations is merely the result of attempts to apply any relevant pre-existing laws that, in lieu of specific legislation, might curb abuses of crypto. These categorizations are stop-gaps and shouldn’t generally be taken for what certain nations or governments ‘really think’ about crypto.

But secondly, even though many European states are gearing toward the announcement of bespoke cryptocurrency legislation, it would seem unlikely that many will advance so far as to actually recognize Bitcoin, Ethereum or any other major coin as legal tender. With the notable exceptions of Switzerland and Germany, the majority of European states deny that cryptocurrencies are money and given how jealously governments and central banks tend to guard their financial powers, it’s unlikely they’ll shift from this stance anytime soon.

China and East Asia

Jealousy is particularly acute in China. In December 2013, the Chinese government issued a notice proclaiming that Bitcoin is not a currency.

“In terms of nature, Bitcoin is a specific virtual commodity that does not have the legal status equivalent to currency and cannot and should not be used as currency in the market.”

Nonetheless, the same notice also acknowledged that “[Bitcoin] transactions act as a way of buying and selling goods on the internet,” and given that it made no attempt to prohibit or discourage such activity, it’s arguable that the announcement acted as a tacit recognition of cryptocurrencies as a means of payment (i.e., as money).

Unfortunately, the Chinese government’s position has hardened considerably since 2013. It banned ICOs in September 2017, while it also prohibited crypto exchanges that same month and later blocked foreign exchanges, citing “financial risks” as its motivation for both acts. In other words, it effectively denied that cryptocurrencies are legitimate securities, assets or commodities in China, just as it had denied their status as currency four years previously. And given that it has also been taking steps to make mining more difficult this year, the current political and regulatory climate in China is now denying cryptocurrency any kind of official status.

Things aren’t so gloomy for crypto elsewhere in Asia. In Japan, the government has gone through an opposite process to China’s, classing Bitcoin as “not currency” in 2014 and then correcting its position in March 2016, when the Payment Services Act finally recognized cryptocurrencies as money. However, as an indication of the uniqueness of crypto, the actual definition included in the act described cryptocurrency more specifically as a “property value” that can be used to buy goods and services, rather than as a currency.

Over in South Korea, cryptocurrencies are recognized as an “asset with measurable value,” a verdict furnished by the nation’s supreme court on May 30. It is consistent with the regulation and guidelines issued by South Korean authorities to date.

In Singapore, the government is also inclined to view cryptocurrencies as assets rather than money. In August 2017, the Monetary Authority of Singapore (MAS) warned ICOs and crypto exchanges that it has jurisdiction over those tokens falling under the definition of securities, a warning it repeated in September and also this May to eight exchanges that hadn’t yet registered with it.

Unique identity

Again, what such stances underline is that most developed nations are cautiously open to cryptocurrencies as a new financial instrument, as a new means of generating income and raising capital and as the basis of a new technology — i.e., blockchain. However, it’s clear that few currently want to recognize Bitcoin or any other decentralized coin as money, especially if their governments happen to be more authoritarian. This reluctance is particularly evident in certain examples we’ve skipped over: In Russia, cryptocurrencies are “not a legal method of payment” but rather property, while the government in Turkey has previously stated that Bitcoin is “not considered as electronic money” under current law and isn’t compatible with Islam.

Because most governments are still unsure of how cryptocurrencies will develop in the future, and possibly because they don’t want to recognize the radical implications of decentralized money, they’ve shied away from establishing a distinct legal identity for cryptos. Instead, many have attempted to apply whatever relevant pre-existing laws they can, in the hope that this will curb those effects of cryptocurrencies that may be undesirable from the perspective of a national government. This is why, on an international level, cryptocurrencies have been swamped by a flood of miscellaneous categorizations, from private money to property and ‘transferable value.’

On the other hand, the variation in classifications is also a product of the versatility of cryptocurrencies. Because they generally aren’t issued and control by a central body, there are few restraints on how they can be used. Some holders may therefore use them as a means of payment, others may treat them as a speculative financial instrument or as property, while the future could bring yet even more functions. This adjustability to the needs of holders is one of crypto’s defining characteristics, which is why the U.K. government was probably right to say in 2014 that cryptocurrencies have a “unique identity.” And it’s also why, when the world’s governments finally get around to introducing specific legislation for cryptocurrencies, they’d be well advised not to attempt to subsume them entirely under existing legal categories.

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Conclusion

In our next video we explore in depth the Six Principles of EWP, and why Wikipedia discusses them in their article on International Tax Planning. These Six Principles are at the core of any properly designed EWP asset structure, and explain why Private Placement Life Insurance is best suited to protect your crypto assets from evasive government regulation and taxation.

If you found this video useful please give us a Like, and click on the Subscribe button. We look forward to connecting with you in Episode Four in our Crypto Series.

To learn how the wealthiest families in the world conduct their financial affairs, please call +1 530 692 1007, or email us at info@expandedworldwideplanning.com.

At your convenience, we can arrange a call to discuss how our unique blueprint can vastly enhance your asset structure.

Disclaimer

The opinions expressed in this video are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual on any financial structure, investment, or insurance product.

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

Michael Malloy-CLU-TEP

 

 

 

 

 

 

 

 

 

 

 

The EWP Stories Video Series – Part 2 – Episode 3 – Asset Protection 3

The Expanded Worldwide Planning Stories Video Series – Part 2 Episode 3 – Asset Protection 3

Asset Protection Planning

International Tax Planning

INTRO

Our asset protection model is called The EWP Da Vinci CodeWe call it The EWP Da Vinci Code for two reasons: the first is because Leonardo Da Vinci said, “Simplicity is ultimate sophistication, and second, our asset protection model is the opposite of the convoluted plot of the popular film, The Da Vinci Code. Our model is a simple, straightforward, and highly effective technique.

In today’s world of financial transparency, there is no hiding of financial assets. The EWP Da Vinci Code brings you peace of mind through a long-established and secure financial structure—life insurance, in the form of Private Placement Life Insurance, or PPLI for short. Our model is highly effective, yet conservative, and offers more asset protection than the recently invented options available to wealthy families.

In this video, we follow the plight of Janice Johanson, who through poor asset protection planning must forfeit a substantial part of $100M that she received from the sale of her business. We encourage you to learn from Janice’s mistake, and protect your own businesses and assets with an EWP asset structure.

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

Michael Malloy-CLU-TEP

 

 

 

 

 

 

 

 

 

 

 

 

The Expanded Worldwide Planning Stories Video Series – Part 1 – Episode 1

EWP : Insures: PRIVACY – 1

Welcome! Here we begin a new series of stories to dramatize the six principles of Expanded Worldwide Planning, or EWP for short. This story will teach you how an EWP asset structure could have prevented the kidnapping of the journalist daughter of a billionaire Mexican-American businessman.

 

Note: The opinions expressed in this video are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual on any financial structure, investment, or insurance product.

We appreciate your comments and questions.

Thank You.

~ Michael Malloy

 

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

Michael Malloy-CLU-TEP

 

 

 

 

 

 

 

Expanded Worldwide Planning Interview with Joe Robert and Michael Malloy

EWP

INTERNATIONAL TAX PLANNING

INTERVIEW

Michael Malloy CLU TEP RFC & Joe Robert

“On Today’s Episode Joe speaks with Michael Malloy. Michael is going to discuss with Joe about EWP…What is EWP exactly?…. Expanded world wide planning. Michael is going to tell YOU about financial planning, asset protection, estate planning and life insurance planning. And finally how people industry and relationships are key to increasing net worth.”

 

PDF Summary

Interview Highlights – Part 1

 

Interview Highlights – Part 2

 

FULL INTERVIEW

 

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

Michael Malloy-CLU-TEP

 

 

 

 

 

 

 

 

 

EWP Stories-3

Expanded Worldwide Planning
International Tax Planning

Stories
Part 3: Tax Shield

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EWP adds tax deferral, income, estate tax benefits and dynasty tax planning opportunities. Assets held in a life insurance contract are considered tax-deferred in most jurisdictions throughout the world. Likewise, PPLI policies that are properly constructed shield the assets from all taxes. In most cases, upon the death of the insured, benefits are paid as a tax free death benefit.

The best comment made about the tax benefits of PPLI is from the October 1994 article in Offshore Investment by Professor Craig Hampton:

“I was visiting a gentleman at his home in the Piccadilly district of London. It was explained to me that his net worth exceeded $100 millionU.S. by a substantial margin. I noticed the presence of a computer terminal on a large desk in his den. It was surrounded by reams of paper dealing with offshore investing.

It soon became apparent that his affluence was due to his own efforts when he said to me:

“You’re a bright young man who obviously knows his craft. But what can you tell me that I don’t already know about finances?”

I leaned forward and made this simple statement:

“Through the creative use of international life insurance, your financial affairs can be arranged so that you will never have to pay income taxes for the rest of your life!” The gentleman took serious notice, and thus was born the Hampton Freeze.”

The Hampton Freeze is the name coined for the various PPLI designs developed by Professor Craig Hampton in the early 1990s. These designs were utilized in cases where the premium was over $100M, but can also be employed for PPLI policies with lesser amounts of premium.

Oddly enough many of the tax benefits used for the sophisticated designs like the Hampton Freeze utilize the same tax benefits common to all life insurance policies:

  • tax-deferred growth of internal cash value;
  • no capital gains tax;
  • no income tax;
  • ability to access cash value through tax-free loans;
  • tax-free death benefit, if structured properly.

This is why savvy, wealthy families today are employing PPLI in greater and greater numbers. A hallmark of the popularity of this asset structure is its conservative and straightforward nature. This ironically allows it to achieve spectacular tax savings.

Why strain to invent a structure that will very likely draw the attention of tax authorities, because of its convoluted and aggressive design? We counsel you to stop trying to be overly clever in the design of your asset structures. Why not use a financial tool that has been in use since Ancient Rome—life insurance? This will give you the best tax shield available today bar none.

Part 1

George Allbright was skimming over the arid, parched landscape of New Mexico in his Eurocopter Mercedes-Benz EC-145. This stylishly, well-appointed helicopter, costing $7 million dollars, could maneuver effortlessly between the narrow red-rock canyons near his home. But minutes from his home were some of the poorest tribal communities of the Navajo Nation.

Some of these communities have been compared to Third World countries because of their economic struggles and their lack of basic modern water and energy systems. Most of the state’s Pueblo villages, Navajo chapter houses and Apache communities are isolated and have little or no access to the already poor infrastructure in New Mexico.

George’s source of great wealth was also a product of sharp contrasts. He was a non-smoker who founded a chain of stores that sold cheap cigarettes. He was raised in a large city, Detroit, yet now was one of the largest landowners in the U.S. He had used his prodigious capital from the sale of his cheap cigarette stores to purchase ranches across the United States.

George skillfully landed his helicopter on the helipad a short distance from his split-level modern home that was cut out of a cliff overlooking acres of pristine desert landscape. He had no neighbors in sight, and he liked it that way.

After his flight, he sat on his veranda overlooking the silent and serene desert, dotted with creosote and mesquite. He savored his favorite single malt scotch, Laphroaig, with its strong peaty taste.

His cell phone vibrated loudly on the glass table. It was a number he did not recognize.

“Hello,” said George.

“Good afternoon,” said a well educated voice. “Let me get straight to the point. We have not met, but my company, Conservation for Nature, would be interested in working with you. You have plenty of land, and we have the expertise to give you excellent tax breaks.” He went on to detail the large tax deductions they were offering.

“Your timing could not have been better. My accountant has just told me that I need to consider ways to reduce my taxes. I have looked into conservation easements before, but the tax deductions that you propose are much better than I have heard of before. Yes, I would be interested, very interested. Please call me back tomorrow.”

George had had a simple plan in amassing millions of acres of ranch land. He wished to keep it away from developers. This is just what conservation easements accomplished.

He also was feeling guilty about not properly figuring out how he was going to pass on his wealth to his family. If he could pay less in tax, he would have more to pass on to his wife and children. This thought gave him pleasure.

George marveled at his good fortune to receive such an opportune call. Was it too good to be true?

A Brief History of Taxation

We will be concentrating on the ‘shield’ aspect of the tax shield, but before we go into more detail, let us speak briefly about the ‘tax’ aspect of our subject. What is the history of this thing we wish to shield?

In the ancient world there is recorded a system of taxation in Egypt around 3000-2800 BC. Documents show that the Pharaoh would tour his kingdom twice a year to collect taxes. In the Bible, we find this quote,

“But when the crop comes in, give a fifth of it to Pharaoh. The other four-fifths you may keep as seed for the fields and as food for yourselves and your households and your children,” Genesis (chapter 47, verse 24, the New International Version.)

America was tax-free for much of its early history. This changed at the time of the Civil War, when large debts were incurred to fund the war against the South. In order to help pay for the war, the Congress passed the Revenue Act of 1861. The tax was levied on incomes exceeding $800 and was not rescinded until 1872.

In 1913, the 16th Amendment to the Constitution was introduced to pave the way to an income tax by removing the proportional to population clause. It was quickly followed by an income tax on people with an annual income of over $3,000. This tax touched less than 1% of Americans.

World War I led to three Revenue Acts that cranked up tax rates and lowered the exemption levels. The number of people paying taxes in the U.S. increased to 5%, and separate taxes were introduced for estates and business profits.

By 1940, the need for the U.S. to prepare for war and support its allies led to even more aggressive taxation. People with incomes of $500 faced a 23% tax and the rates climbed up to 94%. The average annual income at this time was $1,000. By 1945 $43 million Americans paid tax and the yearly receipts were in excess of $45 billion, up from $9 billion in 1941.

Who Pays the Most Tax Today?
The most recent IRS data, from 2016, shows that the top 10 percent of income earners pay almost 70 percent of federal income taxes.

Looking at all federal taxes, the Congressional Budget Office shows that the top 1 percent pay an average federal tax rate of 33.3 percent. The data show tax rates decline with income, and the poorest 20 percent of the population pays an average tax rate of just 1.7 percent.

Part 2

Jack Newcastle pursued his position as a lawyer at the IRS’s Global High Wealth Group with zeal. Many of his colleagues would call Jack a zealot. He was an unabashed crusader against abusive tax schemes.

What was not so common knowledge was that his grandfather’s law firm was destroyed for backing one of these abusive tax schemes. Because of this, the life of a rich, successful partner at a major law firm was denied to Jack. Jack sought revenge on those who had robbed him of his prestigious partner position.

Jack was walking down H Street, heading towards the Treasury Building. His mind felt dull, far from the clear, scientific thinking required to succeed on his current audit case. The Baroque grandeur of the city plan of Washington D.C. was lost to him.

Jack was lost in thought about the latest developments at the office. He was part of the Global High Wealth Group audit team that was undertaking an audit of Conservation for Nature, the company that had contacted George about the purchase of his land.

Things were not going well on this audit. The promoters of this syndicated conservation easement scheme were successfully bending the law to their advantage at every turn.

A conservation easement, in its original, legitimate form, is granted when a landowner permanently protects pristine land from development. In that scenario, the public enjoys the benefit of undeveloped land and the taxpayer gets a charitable deduction.

By contrast, these promoters were finding appraisers willing to declare that land parcels purchased by the promoters have huge development value, and thus were worth many times the purchase price. They then were selling stakes in the deal to wealthy investors who extract tax deductions that are often five or more times what they put in.

The Global High Wealth Group was introduced with the aim of stopping just this type of unscrupulous promoters. Unfortunately for the IRS, the Global High Wealth Group was not working as expected: with bureaucratic end-fighting and being woefully underfunded, the initial euphoria at its launching was short lived. They also had experienced no steady leadership with three directors in the past five years.

At the beginning of the audit, the promoters seemed easy targets. But as they progressed with the audit, they realized that they were dealing with more savvy characters.

All this brought Jack to his office in a sour mood.

Jack’s cell phone rang. He did not recognize the number, but answered anyway, “Hello.”

“Jack is that you,” said a strangely familiar voice.
“Yes.”
“This is George.”
“Man, it’s been a while.”

George telephoned Jack because he remembered that he had taken a position at the IRS, and he might know something about Conservation for Nature. After a few minutes of catching up, George asked him about Conservation for Nature, and was told about Jack’s ongoing audit.

They agreed to speak the following day, as Jack had reached the Treasury Building, and needed to go into his office.

George felt the pleasure of connecting with an old friend, but he knew the story of Jack’s grandfather, and how bitter Jack was at having to accept a position at the IRS. Jack gave only negative comments about Conservation for Nature. Could Jack be trusted? Would his advice be tainted by his personal history?

PPLI Benefits U.S. Persons with Real Estate

The benefits of using PPLI for U.S. persons investing in real estate in the U.S. are substantial. Why don’t more U.S. persons take advantage of these benefits? We maintain that it is because of profound misunderstandings about the Investor Control Doctrine and the diversification requirements of variable contracts under IRS code section 817(h).

Ironically, these misunderstandings have been clarified by the Webber decision, Webber v. Commissioner, 144 T.C. No. 17 (June 30, 2015). In the popular press, and in many tax journals, this same Webber decision was interpreted as the ‘nail in the coffin’ for PPLI.

Let us explore how the Webber decision makes it clear that in a properly structured PPLI policy, U.S. real estate can be held and still be fully compliant with the IRS. We will do this through the lens of what the Webber decision tells us about the Investor Control Doctrine and the diversification requirements of variable contracts under 817(h).

These are the key points of the Webber decision that support the inclusion of U.S. real estate in a properly designed PPLI policy:

The egregious flaunting of what is known as the Investor Control Doctrine by Jeffrey T. Webber, William Lipkind, his attorney, and the manager of his Insurance Dedicated Fund (IDF) (Butterfield Bank) has blinded advisors and their clients to an essential point in the tax court’s decision. Judge Lauber, the presiding judge, found no objection to the private companies and other investments that were placed as in-kind premium in the two PPLI policies that were in question. There is nothing in the rules regarding PPLI either before or after Webber which would prohibit the use of private company securities, actively operated and closely business interests, and real estate enterprises within a policy IDF or Separately Managed Account (SMA).

The Tax Court’s key issue was the fact that Mr. Webber was on the board of every company in which the policy invested, invested his own funds from his personal wealth and his IRAs, and that he negotiated the terms of every loan on behalf of the company and then gave the instruction to Mr. Lipkind and Butterfield Bank. The court states, “The record includes more than 70,000 emails to or from Mr. Lipkind, Ms. Chang (Webber’s accountant), the IDF Investment Manager, and/or Lighthouse (the insurance company) concerning petitioner’s “recommendations” for investments by the separate accounts. Mr. Lipkind also appears to have given instructions regularly by telephone.”

IRC Sec 817(h) provides a detailed overview of the investment diversification requirements of variable insurance products. The regulations address a wide range of investment alternatives that are not found in retail variable life and annuity products such as direct investment in real estate, and commodities.

Treasury regulations 1.817.5 provide very detailed guidance on the investment diversification rules. The regulations interpret these rules for investment asset classes such as real estate, and allow for a period of time to meet the diversification requirements of IRC Sec 817(h). For non-real estate accounts, the regulations provide for a one-year period to meet the diversification requirements. Real estate accounts provide for a five-year start up period and a two-year liquidation period.

The court states: “The “investor control” doctrine posits that, if the policyholder’s incidents of ownership over those assets become sufficiently capacious and comprehensive, he rather than the insurance company will be deemed to be the true “owner” of those assets for Federal income tax purposes. In that event, a major benefit of the insurance/annuity structure–the deferral or elimination of tax on the “inside buildup”–will be lost, and the investor will be taxed currently on investment income as it is realized.”

It is clear from reading the Webber decision that, if Mr. Webber had followed the very language stated in his policy, his PPLI structure would have worked, and complied with the Investor Control Doctrine and the diversification requirements of 817(h). The court record reads: “As drafted, the Policies state that no one but the Investment Manager may direct investments and deny the policyholder any “right to require Lighthouse to acquire a particular investment” for a separate account. Under the Policies, the policyholder was allowed to transmit “general investment objectives and guidelines” to the Investment Manager, who was supposed to build a portfolio within those parameters.”

Part 3

When Jay Edwards began a land appraisal project, he had a single goal—to produce the highest valuation possible. He had had 30 years to hone his skill of inflating appraisals. When he had done retail appraisals at the height of the refinancing boom in the early part of this century, his services were in high demand.

The promoters at Conservation for Nature, want a high valuation, because that in turn produces a large tax deduction for its investors. On one deal in South Carolina, they had acquired a property of 28 acres for $1M, then raised about $9M from investors who bought the property.

The investors made an easement donation based on a claimed value for what the land would be worth if developed as a multifamily resort. Jay’s appraised projection produced a tax deduction of about $39M. The tax write off for investors: $4.00 for every $1 invested.

Of late, the promoters at Conservation for Nature, were pressing Jay for higher and higher numbers. His increased consumption of cigarettes and alcohol was keeping pace with these higher numbers. A number that was going in the opposite direction were his hours of sound sleep. He could not remember when he had last had a restful night’s sleep.

Jay had become a character in an old joke; the one the Mafia hired. It went like this.

The Mafia needed a new accountant, so they interviewed three people. They asked the first interviewee, “How much is 2 + 2?”

“Four,” he answered.

“Sorry, that’s not right,” said the Mafia boss.

They asked the next candidate, “How much is 2 + 2?”

“Four, of course,” he said.”

“That’s not right,” said the Mafia boss.

They asked the third accountant the same question.

He responded, “What number do you want it to be?”

The Mafia boss said, “You’re hired.”

The joke was now becoming stale. Conservation for Nature was being investigated by the Department of Justice. The Tennessee state real estate appraiser board brought a formal complaint against Jay, after a detailed review of one of his easement appraisals found an inflated valuation riddled with errors and omissions.

Threatened with loss of his Tennessee license, Jay voluntarily surrendered it instead. However, he continued to work for Conservation for Nature in states where the appraiser for a conservation easement was not required to be licensed by the state, and continued to ply his disreputable trade.

PFIC + Subpart F + GILTI = All Redefined with PPLI

Distributions from a properly structured PPLI policy are distributions from a life insurance policy. Like all policies, both U.S. and issued in other jurisdictions around the world, the distributions are subject to the tax code sections that apply to life insurance.

In a properly structured policy, one can withdraw all basis in the policy, which are the premiums paid, tax free, and take very low cost loans to withdraw the remaining funds. The costs of these loans is equivalent to an administrative charge, and is usually in the range of 25 bps. When the policy is held until the death of the insured life, the amount of the loan is merely subtracted from the death benefit, therefore, the loan need not be repaid.

The 2017 Tax Cuts and Jobs Act (TCJA), has brought an increase in taxation for those who have subpart F income. Just like Passive Foreign Investment Company (PFIC) income, subpart F income can be structured inside a PPLI policy, and, therefore, shielded from tax. PPLI has been used for many years to shield PFIC income.

TCJA gave us a new section of the tax code, Section 951A. For those who have an interest in a controlled foreign (CFC), particularly if they are not C corporation shareholders, there is a new opportunity to use a PPLI structure to shield this income from tax. Section 951A gives us Global Intangible Low-taxed Income (GILTI), which if held in other than a C corporation, has very unfavorable tax consequences that can be greatly mitigated by using PPLI.

Hedge Fund Life Insurance
One distinct benefit of a PPLI policy is the ability to place tax inefficient investments like hedge funds into a tax-friendly environment. Some advisors have even coined the term, Hedge Fund Life Insurance, to highlight the advantages of combining hedge fund investments and life insurance into one tax-advantaged asset structure.

The numbers tell an excellent story in the chart below.

PPLI TAX BENEFITS VS. FEES AND EXPENSES
View PDF Image

The chart compares a taxable investment to one held in a PPLI account over the long-term. The very clear winner is the PPLI account. Even over a ten year period there is more than $3M more in the PPLI account. The chart does not even show the death benefit which is always more than the cash value account. In a properly structured policy, the death benefit is also tax-free, making a PPLI asset structure the undeniable victory in the quest for tax efficiency.

Part 4

George had spent the last evening researching conservation easements, and concluded that they were a good thing. He had also reviewed his tax situation, and realized that the tax deductions that they offered would reduce his tax bill significantly. Perhaps he should work with Conservation for Nature. He had plenty of land, and they had the years of experience. A good combination, he thought.

Later in the morning, Jack telephoned. He spent nearly an hour telling George that the promoters at Conservation for Nature were crooks, and that George should definitely stay clear of them.

Now George was perplexed. He trusted Jack; they had been good friends ever since their time in Detroit. Jack was giving him very concrete reasons why he should not do business with this company. He decided to reevaluate.

A few minutes after his call with Jack, his cell phone buzzed noisily on the glass table in front of him. He jumped up suddenly. He had survived serving in Afghanistan, that is where he learned to fly a helicopter, but loud, sudden noises were still a problem for him.

“Hello, George,”
“Yes?” George said in a wary tone.
“I am calling you back from Conservation for Nature.”

The voice was no longer polished and sophisticated. The caller was drunk, and he knew who it was. An old college friend of his, they used to go out drinking together. Jay could barely articulate his words. Odd that he could now recognize the voice.

He knew Jay well. Jay still owed him money. Jay was the kind of guy who would sleep with his best friend’s wife.

Jay was desperately trying to launch into his well rehearsed sales pitch about the company he was working for—Conservation for Nature, but was hardly intelligible. That was enough for George.

“Good bye, Jay. Please don’t ever call me again.”

The Tax Savings Are Very Significant

Let us summarize the tax advantages of holding investments in a PPLI asset structure:

Tax-deferred “inside build-up” of policy cash values. The industry has preserved the tax preferred treatment of life insurance for decades.

Non-recognition of capital gains. The policyholder has the ability to switch investment options within the product without triggering taxation. Life insurance separate accounts are legally the owners of the investments within variable insurance products. The life insurer receives a reserve deduction equal to its investment income.

The policy’s basis is its cumulative premiums. Once the policyholder has recovered his basis in the contract, the policyholder has a contractual right to a policy loan which allows the policyholder to borrow up to ninety percent of the policy cash value. Policy loans with a net cost of approximately 25 basis points per annum also receive income tax-free treatment. The policy loan is subtracted from the policy’s death benefit, so it never has to be paid back.

Income tax-free death benefit. The policy cash value grows on a tax-free basis. The policyholder can access investment gains within the policy on a tax-free basis during lifetime, and beneficiaries receive the death benefit income-tax free.

Estate tax-free death benefits through the use of third party ownership of the policy, such as an irrevocable life insurance trust (“ILIT”). IRC Sec 2042 provides that as long as the insured does not retain any incidents of ownership within the policy, the death proceeds will not be included in the taxable estate of the decedent.

PPLI Benefits Non-U.S. Persons with Real Estate

There are many obstacles that non-U.S. persons face in investing in U.S. real estate. The primary tax impediments to foreign investment in U.S. real estate in general and in real estate funds specifically are U.S. income, capital gains and withholding taxes. Adding PPLI in combination with trusts and LLC elements eliminates or mitigates these taxes.

Here is a list of the obstacles faced by non-U.S. persons investing in U.S. real estate:

Effectively Connected Income (ECI): Although non-U.S. investors’ gains from U.S. stock are generally not taxable, income and gain from their real estate investments are generally taxable under the ECI rules. Specifically, rental income and/or gains from the sale of U.S. real estate are both generally treated as ECI. U.S. source rental income allocable to a foreign investor is typically not entitled to any treaty preferences. ECI is generally taxed to such foreign investors under the same tax rates that apply to U.S. taxpayers, and foreign investors that receive ECI are required to file U.S. federal and state income tax returns. Finally, the the Foreign Investment in Real Property Tax Act (FIRPTA) rules described below can also transform sales of stock (or other equity interests), and/or capital gain dividends from REITs into ECI.

FIRPTA: Enacted in 1980 to combat perceived unfair advantages for foreign investors in U.S. real estate, FIRPTA imposes significant taxes on dispositions of U.S. real property interests. Specifically, Section 897 of the Internal Revenue Code of 1986, as amended, essentially treats such gain as ECI. In addition, complicated withholding tax rules apply with regard to U.S. counterparties in such transactions.

Non-US Regulatory Concerns: In addition to U.S. tax issues, non-U.S. investors can have non-U.S. tax and regulatory concerns. For example, non-U.S. investors may need to comply with certain informational reporting requirements in their home jurisdictions.

Significant investment capital for U.S. real estate transactions and funds has been and will continue to be raised from non-U.S. investors. In light of this fact, it is important that real estate advisors, investors, and owners understand the tax challenges, as well as the potential solutions, involved when non-U.S. investors invest in U.S. real estate. PPLI is an integral element in these solutions.

Part 5

George sought the solace of flight. He needed to sort things out.

Lifting off his helicopter into the desert at sunrise in the relatively cool of the morning, he knew answers would come to him. Not through pressing, but by letting go of the questions, so the answers would appear without effort. This was his time-honored method of solving problems.

His own desert property was about 5,000 acres, adjacent to the Navajo Nation that was 17.5 million acres. He only wished that geographic size mattered for the Navajos. That they had been given what they deserved for their land.

A certainty gripped him as he sped low atop a treeless mesa where the bottom would unexpectedly drop out from under him to reveal a spectacular panorama below. He enjoyed this jolt, like what you feel on a roller coaster ride when you descend without warning from a long slow ascent.

A few minutes on the phone with Jay did what all Jack’s well reasoned arguments could not do. If Jay worked for Conservation for Nature, it was not a company he would do business with.

Yes, he could use a tax deduction, but not one that would land him in trouble with the government. George wished a structure that was simple and straightforward like himself. Where would find such a structure? He did not know, but the search would now begin.

He was satisfied. George had learned to live with contradictions and not let them bring him down. These internal struggles could produce something higher, if you handled them properly. His life was a testament to this proper handling. “Keep your eye on the answer, not the problem,” he told himself with a smile.

Outstanding Results Realized

We will compare the various structures generally used by non-U.S. persons for investing in U.S. real estate with the addition of PPLI. Adding the PPLI advantage is a cost-effective way to give clients additional return on their investments and legitimate, enhanced privacy in their structures.

An insurance solution using PPLI or a Private Placement Variable Annuity (PPVA) contract can greatly simplify or eliminate many of these issues and make long term investing even more appealing.

All foreign Investors are exposed to a myriad of US tax consequences, including withholding taxes (30%), capital gains, and even U.S. Estate Taxes. Life insurance, and specifically PPLI, is a well-established tax and estate planning tool that many qualified investors utilize to mitigate and manage these exposures.

Most structures can remain intact with the simple addition of a compliant life or annuity policy. PPLI can accommodate most custodians, managers or funds, making the transaction as simple to set up as a trust.

PPLI also provides simplified reporting and confidentiality. The policy is reported once, and not the assets held or underlying investments. The owner reports a life policy, and not that they are investors or hold assets in the U.S.

The Summary Chart below compares using PPLI with other commonly used structures. The small additional expense of adding PPLI to a structure gives the non-U.S. person many additional benefits that cannot be achieved otherwise.

PPLI with IDF vs. Other Real Estate Structures
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If an EWP Structure had been used….

If an EWP Structure had been used, these salient features would have been of great benefit to George.

  • An EWP Structure is a holistic tax shield. Once assets are placed in an EWP Structure, they are exempt from income tax and capital gains tax. No need to seek out patently fallacious tax deductions like those offered by Conservation for Nature.
  • If George had had his chain of cigarette stores in an EWP Structure, he would have paid no capital gains tax when he sold it. As it were, he paid tens of millions in tax.
  • When George began purchasing ranches, these purchases could have been made inside his EWP Structure with the funds he received from his cigarette stores. Each of these ranches would become a separate investment inside his Structure. He could buy and sell ranches inside the Structure with no tax consequences.
  • Upon George’s death, all the ranches would pass tax-free to his heirs in a properly designed Structure. All appreciation in the ranches would pass tax-free to his heirs. There is currently a provision for a step-up in basis at the death of the owner of real estate in the tax code, but this can be easily taken away with a change of administration in Washington D.C. At this present time, it is rumored to be under consideration for removal from the tax code.

Please Contact Us for any questions you may have.

by Michael Malloy, CLU TEP RFC.

CEO, Founder @EWP Financial

Michael Malloy-CLU-TEP