Frozen Cash Value Unfrozen

A PPLI Policy For Today’s World

 Part 5

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 Our next few articles will comprise an in-depth look at the five main components of our PPLI Concept Map: Professor PPLI meets Leonardo da Vinci.

 Like few profound thinkers Leonardo da Vinci was able to cross-fertilize many disciplines. To name a few art, science, aviation, engineering, music, and elaborate pageants at Italian courts. Many advisors lack knowledge of the outstanding properties of Private Placement Life Insurance (PPLI), because it is a combination of several disciplines: investing, life insurance, asset protection, and estate planning.  This inability to grasp the many planning possibilities of PPLI brings to mind this thought of Leonardo:

“Iron rusts from disuse, stagnant water loses its purity, and in cold weather becomes frozen; even so does inaction sap the vigors of the mind.”

“Cold weather becomes frozen” prefigures one of our main topics, Frozen Cash Value life insurance. Much more on this topic later.

We are also led to the overarching planning concept that informs our PPLI planning, Expanded Worldwide Planning (EWP) which embodies these six characteristics: privacy, asset protection, succession planning, tax shield, compliance simplifier, and trust substitute.

In this series, our earlier articles spoke about the advantages of using PPLI companies domiciled in locations such as Barbados, Bermuda, and other jurisdictions with insurance codes that enhance the possibilities of structuring assets with PPLI. For those with a connection to the U.S., we stressed the importance of using PPLI companies that have made a 953(d) election. We now will add a powerful third element, a PPLI policy that is termed Frozen Cash Value. This is a policy that fails to meet the IRS’s various cash value tests for code section 7702, and qualifies as life insurance under 7702(g).

Here we have a flowchart courtesy of  John Adney, Esq. Davis & Harman LLP  Brian G. King, FSA, MAAA Ernst & Young LLP  Craig R. Springfield Davis & Harman LLP, Esq. This flowchart was part of their “Life Insurance Boot Camp” presentation

History of the Frozen Cash Value Policy

 Let us start at the beginning. To my knowledge the first person to recognize the outstanding potential of using a Frozen Cash Value policy for wealthy clients was Prof. Craig D. Hampton. He called his concept The Hampton Freeze, and wrote an article by the same name in Offshore Investment, in October 1994. Here is Prof. Hampton’s account of his first client presentation using the Frozen Cash Value concept.

“I was visiting a gentleman at his home in the Piccadilly district of London. It was explained to me that his net worth exceeded US$100 million 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 Freeze” Works If You’re Too Rich, Too Old, or Not in Good Health.

Frank Suess’s article, “Never again pay income taxes for the rest of your life,” in The Daily Coin, speaks further about the FCV policy.

“PPLI to this day, is an important tool in our offering. Over the years, many of our clients have employed this tool, which beyond the tax benefits, effectively integrates the benefits of legal asset protection, global investment flexibility, privacy and generational planning features.

While I am not aware of any insurance carrier, today, offering a PPLI policy called the Hampton Freeze, Prof. Hampton’s concept has certainly lived on. Since his article in 1994, a series of products has been created by the industry. These policies are generally referred to as limited cash value policies. The most commonly used product is called a Frozen Cash Value policy. So, the “Freeze” has lived on at least partially.

And, what’s most intriguing about it: It’s valid to this day! While most other effective offshore income tax planning tools have gone to the wayside over the past years, the Freeze, and the concept presented in Prof. Hampton’s article, still works.

You may now wonder how the Freeze works. I recommend you read the article. In brief, it is based on the US tax code (‘the Code’) and its articles relating to life insurance, primarily in section 7702. While ordinary PPLI policies will have their limitations when it comes to insured persons that are too old or in bad health, and no common products will be available for very large premiums, the Hampton Freeze does not know such limitations.

Let me explain in brief, without boring you with technicalities. The Code defines a number of actuarial rules regarding the cash value and the face amount of life insurance policies. They must meet certain minimum risk coverage (death benefit) levels in order to be tax-compliant.

Therefore, based on actuarial best practices and the limitations of reinsurance levels available internationally, you will not have access to the tax freedom offered if you’re too rich. In other words, the limitations of reinsurance are, internationally, at a level of roughly US$40 to US$50 million of life risk. If you’re premium is too high, you will not be able get a policy. In order to keep within the actuarial tests defined by the Code, there will not be enough re-insurance available. Thus, no policy. Equally, you will not have access to the tax freedom of PPLI if you’re in bad health. You will fail at the medical. And, you are locked out of the world of PPLI if you are too old.

The Hampton Freeze removed those limitations. Thus, the largest policies written today frequently make use of the limited cash value concept born in 1994. We too regularly make use of this planning tool. My utmost respect and gratitude to you Prof. Hampton! Good work indeed!”

To complete our history of the FCV policy, Gerald Nowotny, an excellent commentator on many aspects of PPLI, gives us this note from his article, “Frozen Cash Value Life Insurance – A sophisticated tax planning solution for ultra-high-net-worth taxpayers.”

“My experience with FCV policies goes back to 1999, when Scottish Life and Annuity offered a FCV policy. The life insurer secured a favorable opinion from a large law firm. In fact, I’ve reviewed at least four favorable opinions on FCV from large law firms over the course of the last 10 years.”

Leonardo and FCV Both Solve Important Issues

Just as a FCV policy will solve many issues facing wealthy clients today, Leonardo solved many issues during his lifetime, even before his contemporaries thought of them as issues! Here is an excerpt from Fritjof Capra’s book, Learning from Leonardo: Decoding the Notebooks of a Genius.

“Leonardo da Vinci, the great genius of the Renaissance, developed and practiced a unique synthesis of art, science, and technology, which is not only extremely interesting in its conception but also very relevant to our time.

As we recognize that our sciences and technologies have become increasingly narrow in their focus, unable to understand our multi-faceted problems from an interdisciplinary perspective, we urgently need a science and technology that honor and respect the unity of all life, recognize the fundamental interdependence of all natural phenomena, and reconnect us with the living Earth. What we need today is exactly the kind of synthesis Leonardo outlined 500 years ago.”

Commentators of tax issues frequently site 7702(g) as a catchall section of the tax code whereby policies that do not qualify under other sections of 7702 can still have the tax benefits of life insurance.

Michael Kitces’s article, “The Tax-Preferenced Treatment of Life Insurance Policies,” gives us this about 7702(g). His comments echo these commentators, but it is framed in a positive light.

“To further encourage the use of life insurance, Congress has also provided under IRC Section 7702(g) that any growth/gains on the cash value within a life insurance policy are not taxable each year (as long as the policy is a proper life insurance policy in the first place). As a result, if a permanent insurance policy is held until death, the taxation of any gains are ultimately avoided altogether; they’re not taxable under IRC Section 7702(g) during life, and neither the cash value growth nor the additional increase in the value of the policy due to death itself are taxable at death under IRC Section 101(a).”

PPLI gives wealthy families many benefits that cannot be achieved by any other type of planning. Please give us the opportunity to structure your assets to achieve these exceptional benefits. Each family situation is unique. Let us help you explore the PPLI potential of your unique situation, so you can achieve these exceptional benefits. Contact Us!

 

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

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Fence = Privacy–Well Sort of

Let PPLI Be Your First Defense

Part 1

Our next five articles will comprise an in-depth look at the five main components of our PPLI Concept Map: Professor PPLI meets Leonardo da Vinci.

These two neighbors are discussing a new tax law in their fenced backyard. Private Placement Life Insurance (PPLI) is a well-established, yet conservation ring fence for your assets. Once assets are structured properly in a PPLI policy, the insurance company becomes the beneficial owner of the assets.

According to Investopedia, “a ring fence is a protection-based transfer of assets from one destination to another, usually through the use of offshore accounting. A ring fence is meant to protect the assets from inclusion in an investor’s calculable net worth or to lower tax consequences.”

This definition reveals the etymology of the word fence. The Online Etymology Dictionary tells us that in the 14th century the word fence was used as an “action of defending, resistance; means of protection, fortification.”

The advantage of an insurance ring fence is that life insurance is a common structuring tool and is used by millions around the world to provide financial security.

Now back to our two neighbors. In our scene the barbecue is pouring out smoke, and smoke can mean trouble. Indeed, it is black smoke which reminds us of a passage at the beginning of Charles Dickens’s Bleak House. We will visit Charles Dickens’s London later on, where Dickens uses fog as a metaphor for the decrepitude of polluted London in the mid-19th century. Indeed, Dickens’s London was a mixture of both fog and smoke during much of the year.

In the context of our story, smoke, whether foul or benign, can easily escape a fenced backyard. Smoke is subject to wind currents, and other atmospheric elements. PPLI structures use a “smoke free” strategy. One that is not subject to the vagaries of the weather.

A properly structured PPLI policy is a ring fence that gives wealthy clients’ assets an airtight chamber. Inside this chamber the six principles Expanded Worldwide Planning (EWP) breathe clean air with no pollutants. The six principles of EWP are: Privacy, Asset Protection, Succession Planning, Tax Shield, Compliance Simplifier, Trust Substitute.

Imagine the scene in our panel taking place anywhere in the world. A government passes a new tax law and its citizens must compile with it, or face certain penalties. Tax laws change frequently and how you must compile–how much tax you must pay under the new law–does not always translate into a simple answer or number on your tax return. This is why we thoroughly research our PPLI structures, and make sure they compile with all the tax authorities involved in the locations of a client’s assets.

Let us back up briefly and visit an excellent basic description of PPLI.

Al W. King III, left, and Pierce McDowell III, are co-founders of the South Dakota Trust Company, LLC in Sioux Falls, S.D. We give you the opening paragraphs from their Trusts & Estates article, “Powerful Private Placement Life Insurance Strategies With Trusts.”

“What is PPLI?

PPLI is essentially a flexible premium variable universal life (VUL) insurance transaction that occurs within a private placement offering. The private placement component adds extensive flexibility to the VUL product pricing and asset management offerings. Because PPLI is sold through a private placement memorandum, every situation can be individually negotiated and custom designed for the client. PPLI can be for single life or survivorship and is offered only to an accredited investor.

PPLI has both a death benefit and a cash value (that is, investment account) and is generally designed to maximize cash value and minimize death benefits. Consequently, PPLI is usually designed as a non-modified endowment contract (non-MEC) policy, with four to five premiums versus a single premium policy (that is, a MEC). In this way, cash values can be accessed tax-free during an insured’s lifetime.

The PPLI cash value is generally invested among a variety of available registered and non-registered fund options (that is, hedge funds, private equity (PE) and other alternative investments).”

From Cole Porter we give you a different aspect of a fence: one that constricts and prevents the innovative structuring techniques that are possible with PPLI. The mystique of the American cowboy roaming the vast open spaces of the western U.S. comes alive in this popular song from the 1930s, Don’t Fence Me In,” courtesy of Warner/Chappell Music, Inc..

“Oh, give me land, lots of land under starry skies above

Don’t fence me in

Let me ride through the wide open country that I love

Don’t fence me in

Let me be by myself in the evenin’ breeze

And listen to the murmur of the cottonwood trees

Send me off forever but I ask you please

Don’t fence me in

Just turn me loose, let me straddle my old saddle

Underneath the western skies

On my Cayuse, let me wander over yonder

Till I see the mountains rise

I want to ride to the ridge where the west commences

And gaze at the moon till I lose my senses

And I can’t look at hovels and I can’t stand fences

Don’t fence me in

Oh, give me land, lots of land under starry skies

Don’t fence me in

Let me ride through the wide open country that I love

Don’t fence me in

Let me be by myself in the evenin’ breeze

And listen to the murmur of the cottonwood trees

Send me off forever but I ask you please

Don’t fence me in

Just turn me loose, let me straddle my old saddle

Underneath the western skies

On my Cayuse, let me wander over yonder

Till I see the mountains rise

Ba boo ba ba boo

I want to ride to the ridge where the west commences

And gaze at the moon till I lose my senses

And I can’t look at hobbles and I can’t stand fences

Don’t fence me in

No

Poppa, don’t you fence me in”

We now travel back to London for a discussion of privacy and data protection. This subject is key to the debate about tax that is taking place on the world’s stage. What our two neighbors are discussing in their backyard is an important topic for governments and those that advise wealthy clients. Caroline Garnham is a London attorney, who heads the firm of Garnham Family Office Services, and is one of our favorite writers on this subject.

First, we give you Dickens’s memorable depiction of foggy London.

“Fog everywhere. Fog up the river, where it flows among green aits and meadows; fog down the river, where it rolls defiled among the tiers of shipping and the waterside pollutions of a great (and dirty) city. Fog in the eyes and throats of ancient Greenwich pensioners, wheezing by the firesides of their skipper, down in his close cabin, fog cruelly pinching the toes and fingers of his shivering little ‘prentice boy on deck. Chance people on the bridges peeping over the parapets into a nether sky of fog, with fog all round them, as if they were up in a balloon and hanging in the misty clouds.”

Was Tony Blair right second time?

Is privacy and data protection a good thing or not?

Should there be a public register of what you own? Would you like your neighbours, friends, children and employees knowing precisely what you own; properties, businesses, pensions and bank accounts? Why not – if you have nothing to hide?

Tony Blair, is on record as saying that one of his greatest regrets had been his own Freedom of Information Act. Why because in his view ‘information is neither sought because the journalist is curious to know, nor given to bestow knowledge on ’the people’. ‘It is used as a weapon’.

To protect his privacy once he left office and started to make money, he erected barriers to prevent an accurate assessment of his wealth His income was channelled through a complicated legal structure. At the top was BDBCO No.819 Limited a company called either Windrush or Firerush. Windrush Ventures No.3 LP was part owned by Windrush Ventures No.2 LP which in turn controlled Windrush Ventures Ltd. The scheme’s advantage was that the LPs, or limited partnerships, were not obliged to publish accounts. Even without public registers and the protection of limited partnerships, Tom Bower, author of ‘Broken Vows’ managed to track down these details – so why do we need a public register?

Furthermore, the drive for a public register is for ownership of companies and properties, but  not of the beneficiaries of a trust – so for anyone wishing to disguise their ownerships they simply need to set up a trust – or take their assets outside the Overseas Territories and Crown Dependencies – in which case Britain plc is shooting itself in the foot. We will get nothing and business will flee from the territories we should be protecting.

This week a Government Bill designed to protect the City in the event of a no-deal Brexit was pulled in the face of almost certain defeat after MPs added an amendment that would have forced greater transparency on the Isle of Man, Guernsey and Jersey – the Crown Dependencies.

The idea of public registers of companies, was originally proposed by David Cameron and George Osborne in 2013 in the fight against the use of offshore financial centres to launder money using a myriad of offshore companies. It was dropped when May became Prime Minister, but resurrected by a bank benchers Hodge and Mitchell.

It is generally accepted that the UK cannot interfere in the affairs of another country even an ‘Overseas Territory’ such as the BVI or Cayman, or a ‘Crown Dependency’ such as Guernsey except in extreme circumstances.”

The UK has however intervened in the affairs of the Overseas Territories, such as in the repeal of the Death Penalty in 1991 and decriminalising homosexuality in 2,000, but has made no such intervention in the Crown Dependencies, which is why the bill had to be pulled to give time for a more detailed debate.

Hodge takes the view that a public register of ownership to stamp out the ‘traffic of corrupt money and illicit finance’ across the world’ justified such intervention! The Paradise Papers according to the campaign group Global Witness estimates that £68bn flowed out of Russia via the British-overseas territories between 2007 and 2016, – but what of other countries? To date only three prosecutions have been made. Is this a good enough justification for undermining the privacy of many others?

Andrew Mitchell takes it one stage further, ‘It is only by openness and scrutiny, by allowing charities, NGOs and the media to join up the dots, that we can expose this dirty money and those people standing behind it. Closed registers do not begin to allow us to do it’

That did not prevent Tom Bower finding out all he needed to know about Tony Blair!

The real debate needs to be on how far can we undermine the human right to privacy enshrined in many countries so that rich countries can pick out a few bad apples in a barrel of good ones?”

Find out today how an asset structuring technique–PPLI–can be both conservative and sophisticated. PPLI can give you both privacy and full compliance with the world’s tax authorities. We welcome your call or email. Contact Us right now!

 

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

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The 80/20 Rule

The 20% Is Yours With PPLI

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

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

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

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

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

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

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

  • All assets inside the PPLI policy receive tax deferral, not only investments, but business income too.
  • The assets pass tax-free to the beneficiaries named in the PPLI policy. In a properly structured policy one creates a tax-free environment for these assets. Assets can be located anywhere in the world.
  • Because life insurance is used, FATCA and CRS reporting is greatly simplified, and in some cases, is eliminated.
  • Families receive enhanced privacy, because the insurance company becomes the beneficial owner of the assets inside the PPLI policy.
  • The EWP structure provides excellent asset protection.
  • The EWP structure is low cost with fees averaging 1% of assets.
  • The EWP structure is fully compliant with the tax authorities of all tax jurisdictions.
  • Should an untimely death of the wealth creator occur, his family is protected with a tax-free PPLI death benefit.

80/20 In Action

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

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

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

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

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

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

 

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What Is Time?

PPLI Stops Time

 This week we will learn how a sophisticated structuring technique for wealthy international families, Private Placement Life Insurance (PPLI), has the ability to stop time. Yes, this may seem at first hearing outrageous, but from a tax and privacy perspective, this will be the conclusion of our article.

If PPLI has this ability, we must first define time. A tall order, you say. Let us look at a few quotes from William Shakespeare to get our bearings.

“Make use of time, let not advantage slip.”

“Let every man be master of his time.”

“I wasted time, and now doth time waste me.”

From these three quotes, we read that one element of time is scarcity: you only have so much of it.  And through your use of time, it is possible to place your affairs in more favorable circumstances.

What happens when assets are placed in a properly structured PPLI policy? These assets enter a privacy enhanced and tax-free environment. If this structure is properly maintained, from the time the policy is issued until the death of the last person insured under the PPLI policy, the assets are not subject to tax and receive enhanced privacy.  As far as tax laws are concerned TIME HAS STOPPED.

PPLI and Tax Law

 Let us leave the realm of poetry and re-enter the domain of tax concepts.  One element of tax law that is germane to time is the concept of constructive receipt. 

According to Investopedia, “Constructive receipt is a tax term mandating that an individual or business must pay taxes on income despite the fact that it has not been physically received. An individual is considered to be in constructive receipt of income when they have the ability to control or utilize the funds, even if they do not have direct possession of them, or if it is guaranteed they will have the ability to draw upon the funds in the future. A business is said to be in constructive receipt if the business has the ability to use the money without restriction or if it has been deposited into the business’ account. Constructive receipt of income prevents taxpayers from deferring tax on income or compensation they have not yet utilized or spent.”

The concept of constructive receipt is no longer applicable to a properly structured PPLI policy, because the assets have been reconstituted inside an insurance policy. The insurance company is now the beneficial owner of these assets for reporting purposes. When a family wishes to receive funds from the policy, they are distributions from the PPLI policy, and only charged a small fee, most usually around 25 basis points.

Again, the laws usually applicable to the assets inside the policy no longer apply. TIME HAS STOPPED.

Our firm gladly welcomes your structuring challenges, questions, and comments. We wish to participate in your quest to, as Shakespeare says, “Make use of time, let not advantage slip.”

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

 

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The Art of War in Action

Achieve Stealth Victory with PPLI

Private Placement Life Insurance (PPLI) allows you to achieve levels of legitimate privacy not possible with solely planning with trusts. The PPLI policy works in harmony with a trust to create an environment of enhanced privacy. So what war are we talking about? This war is being played out worldwide almost daily between governments and individuals on what constitutes privacy.

This war is not so simple. California just passed a landmark privacy bill, and after the bill’s passage, one aspect that remains ambiguous is what constitutes the data that can be made private at the individual’s choice. We have an excerpt below, courtesy of The Wall Street Journal, by Marc Vartabedian, Georgia Wells, and Lara O’Reilly.

“One of the points of contention is likely to fall around the legislation’s definition of “personal data,” which includes broad categories such as biometric data, psychometric information, browsing and search history and geolocation data. The act’s current version states that personal information doesn’t include information that is publicly available or general enough to not identify an individual, a broad definition technology companies may lean on heavily to argue their collection of such data is justified.”

Thankfully, things are somewhat simpler in our field of planning for wealthy international families. By combining a trust and a properly structured PPLI policy, we can transfer beneficial ownership to the insurance company which creates a much welcomed benefit for families.

This is particularly true for those that reside in countries where the government is unstable or corrupt, or sometimes unfortunately both.  This issue raises real concern for the personal data of wealthy international families in the massive exchange of data now taking place under CRS.

In a recent letter to The Financial Times, Filippo Noseda, a partner at Mishcon de Reya LLP, gives us a startling example:

“In Argentina seven members of the Argentine tax authorities were arrested on February 2 for allegedly selling taxpayers’ information, showing the risks faced by citizens living in high-risk jurisdictions who for one reason or another have bank accounts abroad (Argentine police also seized $5m in cash, which gives a measure of the scale of data trafficking). Dissidents with foreign accounts will be particularly vulnerable to reprisals from their governments.”

Hiding in Plain Sight

What are the steps that allow an insurance company to become the beneficial owner of the assets inside a PPLI policy, and give clients a level of legitimate privacy not possible with other techniques?  Here they are:

  • The policyholder contributes the assets that he or she wants to protect as a premium payment, in cash or in kind, to a bespoke investment fund created by the life insurer. The life insurer opens a dedicated account at a custodian bank for the underlying assets of the policy.
  • The policyholder selects an investment strategy and nominates an investment manager. The life company formally appoints the investment manager.
  • This internal investment fund is exclusively linked to the policyholder’s life policy. The value of the PPLI policy is equal at all times to that of the underlying internal investment fund.
  • The life insurer has now become the Ultimate Beneficial Owner (UBO) of the underlying assets. In return for the premium payment, the policyholder has a “claim” on the life insurer for the value of the underlying investment fund.

This planning technique of using the insurance company as the beneficial owner of the assets in a PPLI policy is akin to what we learn in a 5th century text by Sun Tzu, The Art of War. This famous text teaches ostensibly about war, but its basic message is–avoid open conflict unless it is absolutely necessary.  A few key quotes from the book demonstrate this:

“The supreme art of war is to subdue the enemy without fighting.”

“If you know the enemy and know yourself, you need not fear the results of a hundred battles.”

“A good commander is benevolent and unconcerned with fame.”

This is precisely what we do in marrying a trust with a properly structured PPLI policy.  The result is what we call Expanded Worldwide Planning (EWP). By finding the best of what a trust and an a PPLI policy have to offer, we create this legitimate environment of enhanced privacy without a conflict with tax authorities in any jurisdiction worldwide. This is stealth that achieves a victory by study and superior knowledge.

Please bring us your privacy concerns, so we can construct a bespoke structure that fits the aims and goals of your family.

 

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

 

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Succession Planning

     PPLI Offers the Following Advantages  

  • Transfers assets without forced heirship rules
  • Transfers assets directly to beneficiaries
  • Transfers assets using a controlled and orderly plan

 

Many countries, primarily in civil-law jurisdictions, require forced distribution of assets at death according to strict laws and regulations.  This usually takes the form of percentage shares of assets that will be distributed to spouses, children, and other close relations of the deceased.1  A PPLI policy purchased outside the home country of the owner or policy holder is one method to mitigate these forced heirship rules.2

The PPLI policy is a contract between the owner of the policy and the insurance company to pay the beneficiary of the policy the death benefit upon the death of the insured under the contract.3 A typical beneficiary provision of a life insurance policy states:  “unless an alternate payment plan, acceptable to us, is chosen, the proceeds payable at the insured’s death will be paid in a lump sum to the primary Beneficiary. If the primary Beneficiary dies before the insured, the proceeds will be paid to the contingent Beneficiary. If no Beneficiary survives the insured, the proceeds will be paid to your estate.”  Since a typical PPLI policy is executed outside the home country of the policy owner, the forced heirship laws do not apply, as the policy will be governed by the laws where the insurance company is domiciled.4

This element of Expanded Worldwide Planning (EWP) provides a wealth holder an excellent method to enact an estate plan that conforms to his/her own wishes, and not be dictated by the forced heirship rules of his/her home country.  To be successful this needs to be well-coordinated with all the aspects of a properly structure PPLI policy, as well as all the other elements of a wealth owner’s financial and legal planning.

Endnotes

  1. “Wikipedia Forced heirship,” https://en.wikipedia.org/wiki/Forced_heirship
  2. Whelehan, “International Life Insurance: An Overview,” in International Life Insurance, edited by David D. Whelehan, JD (Chancellor Publications Limited, 2002) at 1.
  3. Christensen, Burke and Graves, Edward, McGill’s Legal Aspects of Life Insurance, (The American College Press 2008), at 1.3.
  4. supra note 2.

 

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

 

 

Compliance Simplifier by Michael Malloy

PPLI Offers the Following Advantages

  •       Adds ease of reporting to tax authorities
  •       Adds straightforward administration of assets
  •       Adds commercial substance to structures

Compliance Simplifier

The beneficial owner of the assets in a properly structured PPLI policy is the insurance company.1 This greatly simplifies any reporting obligations to tax authorizes, because the assets inside the policy are held in segregated accounts, and frequently spread out over multiple jurisdictions worldwide.  The PPLI insurance company becomes the administrator of the assets and their beneficial owner. Because they are held in segregated accounts, they are not part of the insurance company’s balance sheet and are often placed in the hands of a custodian bank.2

Most PPLI companies will accept any qualified institution to act as custodian, and any qualified asset manager to direct the investments in the segregated accounts.  This relationship between the owner of the policy, the insurance company, and the segregated accounts is codified in the laws of the various jurisdictions where PPLI insurance companies are located, and therefore lends viable commercial substance to such a structure.3

 

Endnotes

  1. “Wikipedia Private placement life insurance,” https://en.wikipedia.org/wiki/Private_placement_life_insurance see also, “The New Age of Global Tax Transparency and Registers of Beneficial Owners. The Compliant Solution,” Taxlinked.net https://taxlinked.net/getattachment/m/FT-Alternative-Solutions/Publications/The-New-Age-of-Global-Tax-Transparency-and-Registe/The-New-Age-of-Global-Tax-Transparency-and-Registers-of-Beneficial-Owners-(3).pdf
  2. Bortnick, “Tax Management: Building Wealth, Reducing Taxes,” in The PPLI Solution, Delivering Wealth Accumulation, Tax Efficiency, and Asset Protection Through Private Placement Life Insurance (The PPLI Solution) at 33 (Bloomberg Press, 2005).
  3. “Wikipedia Private placement life insurance,” https://en.wikipedia.org/wiki/Private_placement_life_insurance

 

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

 

 

Asset Protection

PPLI Offers the Following Advantages

 

  • Protects assets with segregated account legislation
  • Protects assets from claims of creditors
  • Protects assets using the benefits of life insurance

 

The assets inside a PPLI policy are protected from creditors of the insurance company because they are segregated into separate accounts.  These separate accounts are not part of the general assets of the insurance company.1 The assets are protected from their own creditors, because of the asset protection laws in the jurisdictions where the PPLI companies are located.2 For example, the Bermuda Life Insurance Act of 1978, § 26(1), provides an unlimited exemption to the insured of both cash value and death benefit.   Further protection can be offered with the policy being owned by a trust that has its own asset protection provisions.

A PPLI policy actually offers three layers of asset protection:  the fact that they are held in segregated accounts; laws that exempt life insurance from the claims of creditors; and the asset protection laws in the jurisdictions where the PPLI insurance companies are located.

In addition, the PPLI policy inherently offers considerable tax benefits as well as asset protection. This would counter any argument that the transaction was a mere so-called fraudulent transfer to thwart creditors.3

 

Endnotes

  1. Lawson, “An Introduction to PPLI,” in The PPLI Solution, Delivering Wealth Accumulation, Tax Efficiency, and Asset Protection Through Private Placement Life Insurance (The PPLI Solution) at 5 (Bloomberg Press, 2005).
  2. Williams, “Jurisdiction—Home or Away?” in The PPLI Solution, supra note 1 at 285.
  3. Rothschild and Rubin, “Asset Protection: Riches Out of Reach,” in The PPLI Solution, supra note 1 at 50.

 

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