Tag: Expanded Worldwide Planning

Tax Compliance and Privacy Together

Tax Compliance & Privacy Together: PPLI

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Expanded Worldwide Planning (EWP) in Action

A government needs tax dollars to achieve its aims.  Many countries give their citizens, at least in their official pronouncements, a right to keep their financial affairs private.  We have conflict here.  How is this conflict resolved?

In most governmental systems throughout the world, the judicial system has the role of mediator between a government and its citizens. We will discuss two current topics in this area below.  But first, since our role is to assist private clients in navigating the difficult waters between tax compliance and privacy, a word on how we accomplish this.

We are advocates of Expanded Worldwide Planning (EWP).  EWP works to resolve the conflict outlined above. This is achieved by using a properly structured Private Placement Life Insurance (PPLI) policy.

Any asset that can be held in custody 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. 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.

Notable Current Issues on This Topic

These two important items are brought to us courtesy of the Society of Trust and Estate Practitioners (STEP).

  • Powers to issue ‘unexplained wealth orders’ against people who cannot account for their assets, as set out in the UK Criminal Finances Act 2017, will come into effect this Wednesday (31 January), the UK government has announced. A new procedure allowing the authorities to issue bank account freezing and forfeiture notices without a court order comes into force at the same time. An extended legal definition of ‘cash’, to include many kinds of physical property, will come into force on 16 April, along with a new procedure to seize, detain and forfeit it.
  • The trusts, tax structures and other banking arrangements disclosed by documents stolen from offshore law firm Appleby Global are unlikely to be examined in detail in the course of the firm’s breach of confidence litigation against the BBC and the Guardian, according to an interim judgment of the England and Wales High Court. The primary issue will be whether the defendants’ journalism was sufficiently in the public interest to outweigh the breach of confidence entailed by the hacking of Appleby’s computer system, and the subsequent leaking of its client documents to the media (Appleby v BBC and The Guardian, 2018 EWHC 104 Ch).

The first news item is striking in that the UK government has eliminated the obtaining of a court order in allowing authorities to issue bank account freezing and forfeiture orders.  We mention the second item, Appleby v BBC and The Guardian, because the issue the Court is deciding goes to the heart of all the recent leaks of private client information by news organizations and non-profits.

EWP and a properly structured PPLI policy cannot solve all your problems, but we hope we can assist in solving a few of them.  We welcome your inquiries, comments, and suggestions.

 

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

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PPLI OVERVIEW

PPLI: Life Insurance Defined

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#PPLI OVERVIEW

Life Insurance for International Clients

(Updated)

Private Placement Life Insurance (PPLI) has a clear advantage in structuring for international clients. In most countries life insurance is defined in their legal codes, and considered a well-accepted benefit for society as a whole. Life insurance is something every one either has or can provide needs justification.

In today’s world of increased tax transparency, after the enactment of FATCA and CRS, life insurance in the form of PPLI not only can give clients increased tax transparency, it can produce a structure that is simple and straightforward.

This is largely accomplished by the fact that in a properly designed PPLI structure the life insurance company becomes the beneficial owner of all the assets inside the policy, and only reports the total cash value of these assets—no other details.

In designing policies for international clients, we endeavor to find what are termed safe harbors. What are these safe harbors? They are sections of the tax codes of countries that clearly define a concept. We then model our structures so that the elements of the structure fit these clearly defined concepts. For those countries that use a common law approach in their tax codes, we are also able to find even safer harbors if case law rules favorably on the tax codes that we use as the framework of our structure.

So, if PPLI structures are able to solve the important issues of increased client privacy and a simplified tax transparent structure, it behooves us to establish a definition of life insurance. We will now give a brief history of how life insurance has been defined in the U.S. tax code, as it pertains to structuring for international clients.

Before the enactment of the Deficit Reduction Act of 1984, which created Code Section 7702, life insurance was only rudimentarily defined. At this time, the Code Section that gave the clearest definition of life insurance was Code Section 101(a), issued in 1957. The definition of life insurance hinged on some element of risk-shifting. The magnitude of the risk was not at issue.

A 1941 Supreme Court case, Helvering vs. LeGierse, concluded that “historically and commonly, insurance involves risk shifting and risk distribution.” This case gives us a definition of life insurance consistent with Code Section 101(a).

Fast forwarding to 1984 and Code Section 7702(a), life insurance is defined for U.S. federal tax purposes as a contract which is a life insurance contract “under the applicable law,” if it meets either the cash value accumulation test or the guideline premium test. Both of these tests are designed to insure a high level of pure death risk coverage relative to the amount of premium contribution. If it fails to meet either of these tests, a contract can be a valid life insurance contract under Code Section 7702(g).

Particularly for clients who are non-U.S. persons, we frequently employ a structure that comes under Code Section 7702(g), so that the least amount of life insurance can be used. This is the so-called Frozen Cash Value (FCV) PPLI policy. To further accomplish a tax-free death benefit to beneficiaries, we also look to Code Section 101(a) to define life insurance in this context.

As far as reporting to tax authorities is concerned, PPLI can mitigate or simplify reporting associated with pre-immigration planning and U.S. exposure, Controlled Foreign Corporation (“CFC”) holdings, FATCA, and CRS.

As always, we welcome your comments, questions, and a brief fact pattern to determine if our Expanded Worldwide Planning (EWP) concepts for PPLI structures can be employed successfully for you. We thank you for your continued trust and confidence.

 

 by Michael Malloy CLU TEP RFC, @ EWP Financial

 

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Non-953(d) PPLI with U.S. Persons

Non-953(d) PPLI with U.S. Persons

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Expanded Worldwide Planning (EWP) in Action

If a U.S. person is beneficiary of a Private Placement Life Insurance (PPLI) policy, is it still possible to use a non-953(d) policy and protect their interests? The answer is most definitely, “Yes.”

Further, in the context of this structure, could this U.S. person exert investor control over the policy, as it is usually interpreted by the various revenue rulings of the IRS? The answer is most definitely, “Yes.”
We will explain how this is possible in the case study that follows. Assume the following for our case study:

  • a Foreign Non-Grantor Trust (FNGT) is the owner of the policy;
  • none of the assets inside the policy have any connection to the U.S.;
  • the insured lives are all non-U.S. persons;
  • the beneficiary of the policy is the same FNGT that owns the policy. The U.S. person of the first two paragraphs above, let us call him, Carl, is a beneficiary of the FNGT.

Since the policy is issued from a non-953(d) company, the policy is not subject to the diversification requirements of 817(h), as well as the investor control regulations. If the policy is issued in Bermuda or Barbados, it qualifies as life insurance in the U.S. context, under section 101(a). At the passing of the last life in the policy, the death benefit flows income tax free, and estate tax free to Carl.

A policy owned by a non-U.S. person or entity does not need to be U.S. tax compliant under 7702(a), but under 101(a) pays a tax-free death benefit to a U.S. beneficiary.

Being a non-953(d) policy, Carl is not subject to the investor control regulations, so can be named as an investment advisor by the life insurance company. This structure was developed for Carl, so he could borrow funds from the policy to make non-U.S. real estate investments, and still have the income and estate tax efficiency of using a PPLI policy.

Expanded Worldwide Planning (EWP) Defined

Using worldwide tax codes in the best interests of clients is at the heart of EWP. The proper study of worldwide tax codes is a gold mine that creates new road maps to give clients the most private and tax efficient structures possible, and still achieve transparency with tax authorities.

Please give us a brief fact pattern, and we will be glad to structure a PPLI policy to meet your needs. This is our speciality. We are glad to share our years of structuring experience with you.

Contact Us Today!

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

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Expanded Worldwide Planning-addendum-white-paper-ewp

Addendum to White Paper on Expanded Worldwide Planning

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Additional comments on EWP

Structuring in Puerto Rico—the best of “the new Switzerland” Expanded Worldwide Planning (EWP)

In case you didn’t, please read the “Expanded Worldwide Planning (EWP)” blog post.

Top international tax planners have been quick to realize the implications of our last white
paper, “Structuring in Puerto Rico—the best of “the new Switzerland.” Indeed, one advisor
coined the phrase “Expanded Worldwide Planning” to describe the new paradigm. We have
espoused this phrase as the title of our short Addendum to our white paper and will be
clarifying some of these new possibilities for your planning toolkit. With EWP, the trust or
entity can be domiciled anywhere the client wishes it to be and so can the assets be located
anywhere in the world. Over the last few years, many of the international families we serve
have been described as Global Citizens. In parallel to that, EWP can be viewed as Global
Planning.

If one accepts the tenets outlined in, “Structuring in Puerto Rico—the best of the new
Switzerland,” that is backed up with a very positively worded legal opinion letter by a major
international law firm, it becomes obvious that the Puerto Rican Private Placement Life
Insurance policy functions merely as a second trust to secure the advantages of Puerto Rico’s  jurisdictional position. These advantages have been strengthened by the recent elections in the US, as well as the voices that have been raised about legal and data breach issues inherent in CRS.1

Ironically, under the umbrella of an EWP structure, planning possibilities are expanded rather than diminished as a result of FATCA and CRS. EWP allows for a tax compliant system that still respects basic rights of privacy. It assuages the quite significant objections many major law firms and international planners rightfully raise against certain aspects of the CRS.2

They are not seeking to hide client assets from tax authorities but do intend to protect their
clients’ privacy, which EWP allows them to do.

With the massive amounts of data being exchanged under CRS about to commence, the risk is high for the right of attorney client privilege to be pierced by groups of journalists working in consort in the name of tax transparency.

This has already become apparent in past experiences such as the Panama Papers. It will take years for all the implications of CRS to be worked out, if indeed it lasts that long.
Why not embrace a structure that bypasses the confusion and discord that will ensue in this process? Advanced Financial Solutions seeks to secure its clients in a tax-advantaged and privacy-advantaged environment. We are not looking to hide client assets and work only with those who have undergone a most thorough KYC and AML process. We invite you to explore EWP with us, and welcome your questions and inquiries.

Download the full PDF with endnotes: EWP addendum final (pdf)

 

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

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PPLI and EWP working together

Expanded Worldwide Planning (EWP) – Review

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The new paradigm for international structuring – Updated

Give Your Clients Greater Control Within a Simpler Structure Using Expanded Worldwide Planning (EWP)

Have you heard of Expanded Worldwide Planning (EWP) or International Tax Planning?

You have heard of FATCA, CRS, and BEPS – well, within these confines, why not embrace greater freedom: EWP allows you to simplify your existing structures and minimize your reporting obligations under FATCA and CRS. The total fee is approximately 1% of the client’s assets inside the structure.

At Advanced Financial Solutions Inc., we are finding that clients are requesting simpler structures that offer full transparency. This white paper introduces you to one that gives advisors multiple creative opportunities to achieve this aim.

In its core, an EWP is a properly structured Private Placement Life Insurance (PPLI) policy
in a jurisdiction appropriate to the client’s other planning needs. The other elements in the
EWP structure differ depending on the individual client situation. Advisors must factor in the client’s nationality, country of origin, country(s) of domicile, the insurance regulations of all the jurisdictions involved, the tax reporting obligations of all the entities in the structure, and the planning aims of the client. Our chart below outlines some of the possibilities for planning using EWP.

Under the segregated account legislation of the PPLI policy jurisdictions listed in our chart,
the insurance company becomes the beneficial owner of the assets inside the policy.

The reporting obligations under FATCA and CRS differ for each of the policy jurisdictions on our  chart. The goal of EWP is to give clients full compliance with all existing tax regulations while still retaining the utmost possible privacy for them.

The old offshore world is in flux and in the process of redefining itself. This creates new
possibilities for planning that did not previously exist. Whatever the nationality of your client and their very particular needs, we can supply you with compliant solutions. Each of the PPLI policy jurisdictions listed in our chart can provide vastly enhanced planning possibilities in  this open architecture environment. The trust, or other policy holder entity, can be domiciled  anywhere in the world, and the assets inside the policy can also be located anywhere in the world. Please reflect on these new possibilities. We welcome your inquiries, questions, and  comments.

Download full PDF document with graphics and notes

 

by Michael Malloy CLU TEP RFC, @ EWP Financial

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Privacy with Expanded Worldwide Planning

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 PPLI Offers the Following Advantages

  • Achieves privacy as well as compliance with tax authorities
  • Achieves protection from data breaches
  • Achieves increased family security

Life insurance is recognized worldwide as a simple and straightforward structure to transfer family wealth.  Private placement life insurance, (PPLI), is a bespoke variety that combines institutional pricing with assets in separately managed accounts.1 In certain jurisdictions, a properly structured PPLI policy can provide both compliance with tax authorities and privacy of the assets inside the policy.2

EWP allows for a tax compliant system that still respects basic rights of privacy . In Article 12 of The United Nations’ Universal Declaration of Human Rights, it states “No one shall be subjected to arbitrary interference with his privacy, family, home or correspondence, nor to attacks upon his honor and reputation. Everyone has the right to the protection of the law against such interference or attacks.”3

EWP assuages the quite significant objections many major law firms and international planners rightfully raise against certain aspects of the Common Reporting Standard (CRS).4  They are not seeking to hide client assets from tax authorities but do intend to protect their clients’ privacy, which is exactly what an EWP allows them to do.

With the Automatic Exchange of Information (AEol) under CRS beginning in 2017, serious questions are being raised by government bodies and stakeholders on the security of their clients’ financial information and violations of an individual’s fundamental right to privacy.5

In a number of countries throughout the world, kidnapping and extortion of wealthy families is a daily reality, and the planned AEol and proposed registers of beneficial owners can only be expected to increase this criminal activity.6  EWP greatly assists in protecting the privacy and well being of wealthy families by keeping the financial affairs of these families both private and in compliance with tax authorities.

 

Endnotes

  1. Internal Revenue Code Section 7702; See Kirk Loury, The PPLI Solution: Delivering Wealth Accumulation, Tax Efficiency, and Asset Protection Through Private Placement Life Insurance (2005); see also Lynnley Browning, “Tax-Free Life Insurance: An Untapped Investment for the Affluent,” The New York Times (Feb. 9, 2011).
  2. Wikipedia, Private Placement Life Insurance, https://en.wikipedia.org/wiki/Private_placement_life_insurance
  3. Also of interest is Section I, Article 8 of the EU Convention of Human rights: “1. Everyone has the right to respect for his private and family life, his home and his correspondence. 2. There shall be no interference by a public authority with the exercise of this right except such as is in accordance with the law and is necessary in a democratic society in the interests of national security, public safety or the economic wellbeing of the country, for the prevention of disorder or crime, for the protection of health or morals, or for the protection of the rights and freedoms of others.”
  4. Andrew Knight and Anthony Markham, “Is there room for privacy planning in a tax–transparent world?” International Investment, 23 November 2016 http://www.internationalinvestment.net/opinion/room-privacy-planning-tax-transparent-world-maitland/ see also Caroline Garnham, “HNWIs, FATCA & CRS: Is Privacy Dead?” Private Client Hub,” 22 July 2016, http://theprivateclienthub.com/fatca-crs-privacy-dead/
  5. Filippo Noseda, “CRS and Beneficial Ownership,” Martindale.com, June 9, 2026, https://www.martindale.com/taxation-law/article_Withers-Bergman-LLP_2229788.htm
  6. Amy Bell, “A Guide To Kidnap & Ransom Insurance Coverage,” Investopedia, June 29, 2015, http://www.investopedia.com/articles/personal-finance/062915/guide-kidnap-ransom-insurance-coverage.asp see also United States Department of State, Bureau of Diplomatic Security, “OSDC Global Kidnapping Assessment, Oct. 31, 2013 http://purchasing.tamucc.edu/assets/Travel%20Forms/OSAC%20Kidnapping%20Report.pdf

 

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

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