Q & A – PPLI for Wealthy International Families

Questions and Answers from the book “The Wit and Wisdom of Professor PPLI: How to Achieve Exceptional Asset Structuring with Private Placement Life Insurance”

~ by Michael Malloy, CLU, TEP

 

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PPLI for Wealthy International Families

– Including Wealthy U.S. Families

PPLI’s Beautiful Architecture

 Part 3

Professor PPLI, in this Part we have a discussion of light and dark from different perspectives. How can this be relevant to PPLI asset structuring?

Imagine a typical flowchart that is used to depict a PPLI asset structure. On most flowcharts of this type, the PPLI policy box is located in the middle.  Usually the owner, most often a trust, is above the PPLI policy box, and below are the various assets and holding companies necessary to complete the structure.

Let us now hear from physicist, Julian Scudder

“Stars form light as a byproduct of the incredible pressures at their centers…. New stars only unveil themselves to our eyes by using the light they give off to burn away the dust and gas that hid them in darkness.”

Now back to our flowchart. Think of the PPLI policy box as a star at the center of the asset structure. The pressure in our analogy is the well-established insurance laws and regulations throughout the world which make these structures possible.

 This PPLI policy box, now a newly formed star, gives off light to the other elements of the structure like the trust, assets, and beneficiaries so they can shine forth. All the elements then have the light they need to make the entire structure successful. This brings to mind the subtitle of our Part, PPLI’s Beautiful Architecture.

Professor PPLI, why did you include U.S. families in the title along with international families? Aren’t there domestic U.S. policies that can serve their needs?

If all a family’s assets are located in the U.S., they might consider using a U.S. product, but most often this would not work if they had unusual asset classes. Domestic U.S. PPLI companies structure their products as extensions of the standard retail Variable Universal Life products.

In most cases, a family is much better off using an offshore insurance company with a 953(d) election. Not only are fees lower, but the entire structure will put most families closer to their ultimate goal–to achieve the six elements of Expanded Worldwide Planning (EWP): privacy, asset protection, tax shield, succession planning, compliance simplifier, and trust substitute.

In our first answer we made an analogy between PPLI and the physical aspects of a star as it relates to light. Many advisors would find this analogy far fetch as most international tax advisors have little or no knowledge of the asset structuring possibilities of PPLI. Professor PPLI, please expand on this fact for us.

Quite true indeed. Attorneys, trust officers, and accountants are not offered any courses in PPLI asset structuring in their formal education, so they must encounter this outstanding tool later in their practices. Even when they do, they frequently reject it, because they are unaware of this variety of life insurance and equate PPLI with retail products.

This is not helped in the U.S. where a few major insurance companies do offer PPLI, but it is more of an extension of their retail products, as we mentioned in the second answer.

It takes a creative partnership between the various disciplines involved in a PPLI structure to accomplish the magic. When attorneys, asset managers, trust officers, accountants, and insurance advisors truly understand the dynamic asset structuring elements of PPLI, they can ride the exciting wave of what we call in the book the Unifying Factor.

Currently, when the very concept of wealth seems under attack from political parties, governments hungry for tax dollars, and worldwide governing bodies like the OECD, why not embrace the Unifying Factor. Families then can avail themselves of the six principles of Expanded Worldwide Planning (EWP) that we mentioned earlier. At Advanced Financial Solutions Inc., we endeavor to secure the Unifying Factor for each of our clients.

 

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

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Q & A- Transformation Abounds

Questions and Answers  from the book “The Wit and Wisdom of Professor PPLI: How to Achieve Exceptional Asset Structuring with Private Placement Life Insurance”

~ by Michael Malloy, CLU, TEP

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Transformation Abounds 

Professor PPLI and the Caterpillar

Section 1, Part 5

Professor PPLI, we know the many issues that PPLI can solve for wealthy families today, but how did this begin? What are the origins of PPLI?

PPLI began in the 1980s in the United States. It was principally used to structure benefits for senior executives at major corporations. It allowed these executives to customize their investments and provide greater benefits than with the standard plans available.

In the early 1990s, PPLI was adopted by wealthy individuals. Attorneys and other advisors saw that PPLI could be a valuable tool in planning for wealthy clients given all the advantages of life insurance. PPLI allows planners to incorporate all of the key elements of Expanded Worldwide Planning (EWP) into one coherent structure: privacy, asset protection, tax shield, succession planning, compliance simplifier, and trust substitute.

In the mid-1990s, major companies entered the PPLI market. Insurance companies saw the marketing opportunities inherent in PPLI, and we see companies being formed in tax friendly jurisdictions like Bermuda and Barbados. Presently, PPLI is seen as a sophisticated asset structuring tool, and a potent planning technique in the hands of advisors throughout the world.

Professor PPLI, please tell us more about how PPLI transforms assets once they are in the policy structure.

Much like the transformation of a caterpillar into a butterfly, when assets are put into a properly structured policy, the insurance company becomes the beneficial owner of the assets. The owner of the policy, usually a trust, uses the assets for the benefit of the wealthowner, even though there are some restrictions due to the investor control regulations for those clients with a connection to the U.S. For clients who have a connection to the U.S., they must comply with the investor control and diversification regulations.

In today’s world of news leaks and fake news, clients worldwide are seeking legitimate privacy in their financial affairs. In recent years, this has been eroded. Interestingly enough, it is part of the Founding Fathers’ vision of the U.S., and is part of the EU’s founding documents. This legitimate privacy can be achieved by using a U.S. trust situated in certain jurisdictions coupled with a properly structured PPLI policy.

In the environment of global taxation that we have today, what gives PPLI a distinct advantage over other methods of asset structuring?

This advantage can be summarized in two words: life insurance. Life insurance is recognized the world over as a societal benefit, and in most jurisdictions has built-in tax advantages. Because of this we begin the structuring process for wealthy families with a conservative tool, not some new construct recently discovered in the tax code.

For advisors who only use life insurance as a method of introducing liquidity into an illiquid estate, for instance, one that holds mostly real estate, it is a learning process to recognize that a properly structured policy can hold almost any asset that a trust company can have in custody. Having the assets in a policy that is owned by a trust gives the wealthowner distinct advantages that cannot be achieved by a trust alone.

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

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Q & A – Inside and Outside PPLI

Questions and Answers  from the book “The Wit and Wisdom of Professor PPLI: How to Achieve Exceptional Asset Structuring with Private Placement Life Insurance”

~ by Michael Malloy, CLU, TEP

Inside and Outside PPLI

Academics Teach Us a Lesson

Section 1, Part 4

 

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Professor PPLI, a key element in this discussion is magic. Give us more insight into how PPLI makes some things disappear and others appear.

This is a good way to view the topic. When we consider the six elements of Expanded Worldwide Planning (EWP), they can be grouped into these two categories. Elements that disappear and those that make things appear.

These categories are somewhat arbitrary, but allow you to collect certain thoughts around these six elements of EWP. We can place privacy, asset protection, and tax shield in the Disappearing Category.

Legitimate privacy allows wealthy families to conduct their affairs outside the prying eyes of those who do not have a rightful interest in their financial affairs. The tax shield in a properly structured policy eliminates taxes in most jurisdictions throughout the world. Asset protection keeps assets outside the reach of ex-spouses, and those seeking easy access to wealth without proper legal authority. This is accomplished using the correct asset protection trust in tandem with the PPLI policy, which adds another layer of protection to the trust.

In the Appear Category, we place trust substitute, compliance simplifier, and succession planning. In some civil law jurisdictions, trusts are not recognized or do not function as well as they do in common law jurisdictions. Using a PPLI policy in the structure can, in some cases, simplify and enhance the planning. PPLI is definitely a compliance simplifier. Since the insurance company becomes the beneficial owner of the assets inside the policy, reporting obligations are greatly simplified and in some cases eliminated. Since the life insurance death benefit passes directly to the designated beneficiaries, it can deliver the death benefit outside the forced heirship laws that exist in some jurisdictions.

One magical aspect of PPLI is that although it is classified as a life insurance product, it functions more like a trust. Since most policies are owned by trusts, you might say that PPLI and trusts join together and become a successful and secure asset structuring marriage. Professor PPLI, please tell us how this is possible. 

The PPLI policy provides elements which are not possible with a trust alone. A trust can accomplish many useful things such as putting into legal language the aims and goals of the wealth owners. A trust also creates an entity that can live beyond the lives of the wealth owners. The following comparison tells the story.

Trust and Insurance Comparison 

Insurance

  • Contractually based and used by millions
  • Tax deferral
  • Insurance company is beneficial owner
  • Simplified or limited reporting
  • Potentially tax free
  • No capital gains taxes
  • No trustee
  • Asset protection

Trust

  • Provides some asset protection
  • Sometimes seen as a tool for the rich
  • Requires “trustee” with full control
  • More stringent reporting requirements
  • Tax filings for trust and possibly beneficiaries required by some jurisdictions

Professor PPLI, you use two very different academic articles in this Section to illustrate a point. Please explain more fully how these two articles relate to PPLI.

Wealthy families are looking for simple and straightforward methods to structure their assets. In part, these two articles illustrate that the financial, political, and governmental aspects of our lives are in constant change. Laws are enacted which sometimes have the opposite effect than was intended by their creators, as one article proves.

Governments are seeking more ways to tax wealthy families, and this is seen by some as a societal good, and by others as governmental overreach. Once assets are properly structured inside a PPLI policy, they are somewhat isolated from these forces, and can pass to future generations according to the wishes of the wealth owners.

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

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Ancient Wisdom and PPLI

Socrates and King Lear Teach Us a Lesson

 Part 4

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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 Defines Nothing. We also offer you over the next five Parts, “She Was Good For Nothing,” by Hans Christian Andersen. This charming fairy tale supports our theme of nothing.

We introduce examples from ancient history and literature, ancient wisdom, to explain how PPLI can be a perfect fit for international families who seek privacy, tax efficiency, and asset protection. PPLI works excellently in multi-jurisdictional planning for those families seeking domiciles outside their home countries for political and economic reasons.

It is interesting to note that both Socrates and Shakespeare’s King Lear were in a sense exiled in their own kingdoms. Socrates put to death by state officials in Athens, and King Lear left to wander in his own country after political intrigue forced him out. These are highly charged dramatic events. It is sometimes equally so for wealthy international families. More about Socrates and King Lear later in our article.

An article in International Advisor, Who is advising Asia’s ultra wealthy?” by Kirsten Hastings focuses on the role of independent asset managers (IAMs). IAMs are key players in the team that we assemble to achieve a properly structured PPLI policy. Frequently there are multiple IAMs on our teams to accommodate the many asset classes that become part of the PPLI policy. Here are some highlights from this article.

“Wealth in Asia is rising faster than in any other part of the world, meaning that increasing numbers of incredibly rich people need expert advice.

These ultra-high net worth individuals can be beyond the reach of financial advisory and wealth management firms.

And rather than turn to private banks, many are seeking the services of independent asset managers (IAMs).

Also known as external asset managers (EAMs), they have a long history in Europe and the US but were a rarity across Asia as recently as 10 years ago.

The Association of Independent Asset Managers (AIAM) was founded in Singapore in 2011 and only opened in Hong Kong in 2015.

So, what do they do?

Independent asset management involves a client opening an account with a custodian bank, which may be a private bank, and placing assets in the account, according to a 2018 report from recruitment specialists Selby Jennings.

The client then gives the IAM authority and power of attorney as a third party to represent them in managing the investment portfolio and asset allocation.

The assets remain in an account in the client’s name at all times, but the IAM makes decisions on how the assets should be managed.

In addition to investment advice, IAMs also offer tax and succession planning along with a host of other, very bespoke services.

With the high net worth population of the region set to increase by over 40% every year over the next decade, the number of IAMs is also projected to increase – by 25% in Singapore and 50% in Hong Kong, Selby Jennings added.

Insurance and IAMs

“IAMs are starting to realise that the investment returns they generate for their clients could be wiped out by market volatility or different taxes when rebalancing the portfolio or realising the gains.”

He said they are increasingly exploring the functions of insurance to “supplement their client’s planning”.

“Due to the complex needs of the high net worths and global tax frameworks, we see a lot of IAMs are considering different wealth structures like PPLI (private placement life insurance) and are exploring insurance as an asset class.””

International Life Insurance

In keeping with our cross-border and international theme, we quote from International Life Insurance edited by David D Whelehan, JD in the chapter, “International Life Insurance An Overview.”

“This product is for the wealthy, “accredited” investor. They are usually very large single premium structures. It is classified more as an institutional product, as the charges and fees are quite low in comparison to retail products described above. Another advantage is investment flexibility as they generally can be invested in things not permitted in a general account retail product, like hedge funds and private equity.

Premiums and benefits can also be paid in “kind,” as opposed to in cash. In addition, the policyowner can select his, or her, own Investment Manager for just the single policy to invest according to the policyowner’s general directions. The Custodian of the underlying assets in the fund can also be selected by the policyowner. Private placement products are tailored to meet specific objectives of the client, but are carefully designed to be compliant with local tax laws, so as to enjoy the tax treatment desired.”

Socrates Ignorance

 Garth Kemerling’s insightful commentary in the Great Philosophers series gives us an excellent interpretation of what Socrates means by one of his most famous quotes, “I only know that I know nothing.”

It is important to note that Socrates himself did not claim to know better than others. He frequently emphases that he is ignorant of the answer. The importance of this helps to draw the line between dogma and genuine philosophy. It is one thing to state one’s opinion of how things are and should be. Powerful institutions such as religions and political systems are built upon such dogmas and the demands that others abide by them. Socrates, on the other hand, started from a position of ignorance and sought the truth. In the end, he has no dogmatic program for us to follow, just a method for seeking the truth for ourselves, without any guarantee that we will find it. Philosophy as practiced by Socrates is an open system.

When he finds that the experts are just as ignorant about what things really are, he reasons: “I do not suppose that either of us knows anything really beautiful and good, I am better off then he is – for he knows nothing, and thinks that he knows. I neither know nor think that I know.” Socrates concludes that it is better to have ones ignorance tan self-deceptive ignorance. Socrates may not know the ultimate answers to the questions he raises, but he knows himself. It is this self-knowledge and integrity that constitutes the wisdom of Socrates. The open invitation is for all of us to ask ourselves how much we truly know of what we claim.”

Part 4 of “She Was Good For Nothing” by Hans Christian Andersen:

“After he had gone my mistress called me in to speak to me; she looked so grave and yet so kind, and spoke as wisely as an angel indeed. She pointed out to me the gulf of difference, both mentally and materially, that lay between her son and me. ‘Now he is attracted by your good looks, but that will fade in time. You haven’t received his education; intellectually you can never rise to his level. I honor the poor,’ she continued, ‘ and I know that there is many a poor man who will sit in a higher seat in the kingdom of heaven than many a rich man; but that is no reason for crossing the barrier in this world. Left to yourselves, you two would drive your carriage full tilt against obstacles, until it toppled over with you both. Now I know that Erik, the glovemaker, a good, honest craftsman, wants to marry you; he is a well-to-do widower with no children. Think it over!’

“Every word my mistress spoke went through my heart like a knife, but I knew she was right, and that weighed heavily upon me. I kissed her hand, and my bitter tears fell upon it. But still bitterer tears fell when I lay upon my bed in my own room. Oh, the long, dreary night that followed-our Lord alone knows how I suffered!

“Not until I went to church on Sunday did peace of mind come after my pain. It seemed the working of Providence that as I left the church I met Erik himself. There were no doubts in my mind now; we were suited to each other, both in rank and in means; he was even a well-to-do man. So I went straight up to him, took his hand, and asked, ‘Do you still think of me?’

” ‘Yes, always and forever,’ he said.

” ‘Do you want to marry a girl who likes and respects you, but does not love you?’

” ‘I believe love will come,’ he said, and then we joined hands.

“I went home to my mistress. The gold ring that her son had given me I had been wearing every day next to my heart, and every night on my finger in bed, but now I drew it out. I kissed it until my lips bled, then gave it to my mistress and told her that next week the banns would be read for me and the glovemaker.

“My mistress took me in her arms and kissed me; she didn’t say I was good for nothing, but at that time I was perhaps better than I am now, for I had not yet known the misfortunes of the world. The wedding was at Candlemas, and for our first year we were quite happy. My husband had a workman and an apprentice with him, and you, Maren, were our servant.”

“Oh, and such a good mistress you were!” said Maren. “I shall never forget how kind you and your husband were to me!”

“Ah, but you were with us during our good times! We had no children then. I never saw the student again. Oh, yes, I saw him once, but he didn’t see me. He came to his mother’s funeral, and I saw him standing by her grave, looking so sad and pale-but that was all for his mother’s sake. When his father died later he was abroad and didn’t come to that funeral. He didn’t come here again; he became a lawyer, and he never married, I know. But he thought no more of me, and if he had seen me he would certainly have never recognized me, ugly as I am now. And it is all for the best!”

Then she went on to tell of the bitter days of hardship, when misfortune had fallen upon them. They had saved five hundred dollars, and since in their neighborhood a house could be bought for two hundred, they considered it a good investment to buy one, tear it down, and build again. So the house was bought, and the bricklayers and carpenters estimated that the new house would cost a thousand and twenty dollars. Erik had credit and borrowed that sum in Copenhagen, but the captain who was to have brought the money was shipwrecked and the money lost.”

Both Socrates and King Lear ended their lives tragically, yet were both noble in spirit. Socrates accepted his death in an herotic fashion. Lear was reunited with his daughter, Cordelia, yet they died in the confusion of battle between the warring parties at the end of the play. How is this related to PPLI?

Great art strives to ennoble us. This is why it is great, and rises above mere entertainment. At Advanced Financial Solutions our aim is to rise to the highest level of structuring for wealthy international families, giving both maximum privacy, and compliance with tax authorities worldwide.

Our quest is not outwardly considered art, but inwardly its goal is the same–uncompromising excellence. We invite you to partake of this excellence by contacting us today to find out if PPLI structuring is right for you.

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

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Nothing Is Impossible with PPLI

PPLI: Under Higher Laws

 Part 3

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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 Defines Nothing. We also offer you over the next five Parts, “She Was Good For Nothing,” by Hans Christian Andersen. This charming fairy tale supports our theme of nothing.

Winnie-the-Pooh gives us one of his most often quoted and enjoyable quotes that reveals new insight into our theme of nothing:

“People say nothing is impossbile, but I do nothing everyday.”

One thing it brings to mind is how we sometimes come to an understanding through both effort and relaxation. We give you examples of this phenomenon from several authors below.

Private Placement Life Insurance (PPLI) was born out of the necessity to achieve greater tax efficiency, privacy, and asset protection in one low cost structure with institutional pricing. This PPLI structure is made possible through the laws and regulations of life insurance. A much more stable and straightforward body of law than the more politicized tax laws and regulations worldwide. Our goal at Advanced Financial Solutions, Inc. is to make possible what is impossible with most asset structuring techniques available to wealthy families today.

In a Wealthmanagement.com article, “Private Placement Life Insurance Primer, Recent tax law changes make for a particularly interesting time to explore PPLI,”  Brian Gartner and Matthew Phillips explain why trustees are particularly attracted to PPLI.

“Trustees are attracted to PPLI in the context of multi-generational trust planning for three main reasons: (1) assets within a trust allocated through PPLI grow on an income tax-deferred basis; (2) the trustee can make income tax-free distributions to trust beneficiaries from PPLI without having to consider the income tax consequences of liquidating assets; and (3) the trust will eventually receive an income tax-free insurance benefit, which will serve to effectively step-up the basis of the assets within the trust that are allocated through PPLI.”

Relax and Create with PPLI

Author, Jonah Lehrer, gives us an explanation of why relaxation is a key ingredient to creativity in an article by Leo Widrich, “Why We Have Our Best Ideas in the Shower: The Science of Creativity.”

“Why is a relaxed state of mind so important for creative insights? When our minds are at ease–when those alpha waves are rippling through the brain–we’re more likely to direct the spotlight of attention inward, toward that stream of remote associations emanating from the right hemisphere.

In contrast, when we are diligently focused, our attention tends to be directed outward, toward the details of the problems we’re trying to solve. While this pattern of attention is necessary when solving problems analytically, it actually prevents us from detecting the connections that lead to insights.

‘That’s why so many insights happen during warm showers,’ Bhattacharya says. ‘For many people, it’s the most relaxing part of the day.’ It’s not until we’re being massaged by warm water, unable to check our e-mail, that we’re finally able to hear the quiet voices in the backs of our heads telling us about the insight. The answers have been their all along–we just weren’t listening.”

PPLI on Vacation

 One definition of vacation is “to vacate to leave empty.” This definition is in keeping with the above description of how we can have our best thoughts when we are relaxed. Amanda Foreman in “The Ancient Origins of the Vacation” gives us a brief history of the concept of vacation.

 “Finally, Americans are giving themselves a break. For years, according to the U.S. Travel Association, more than half of American workers didn’t use all their paid vacation days. But in a survey released in May by Discover, 71% of respondents said they were planning a summer vacation this year, up from 58% last year—meaning a real getaway, not just a day or two to catch up on chores or take the family to an amusement park.

The importance of vacations for health and happiness has been accepted for thousands of years. The ancient Greeks probably didn’t invent the vacation, but they perfected the idea of the tourist destination by providing quality amenities at festivals, religious sites and thermal springs. A cultured person went places. According to the “Crito,” one of Plato’s dialogues, Socrates’ stay-at-home mentality made him an exception: “You never made any other journey, as other people do, and you had no wish to know any other city.”

The Romans took a different approach. Instead of touring foreign cities, the wealthy preferred to vacation together in resort towns such as Pompeii, where they built ostentatious villas featuring grand areas for entertaining. The Emperor Nero was relaxing at his beach palace at Antium, modern Anzio, when the Great Fire of Rome broke out in the year 64.

The closest thing to a vacation that medieval Europeans could enjoy was undertaking pilgrimages to holy sites. Santiago de Compostela in northern Spain, where St. James was believed to be buried, was a favorite destination, second only to Rome in popularity. As Geoffrey Chaucer’s bawdy “Canterbury Tales” shows, a pilgrimage provided all sorts of opportunities for mingling and carousing, not unlike a modern cruise ship.”

Part 3 of  “She Was Good For Nothing” by Hans Christian Andersen:

“The boy cried too, as he sat alone beside the river, guarding the wet linen. The two women made their way slowly, the washerwoman dragging her shaky limbs up the little alley and through the street where the Mayor lived. Just as she reached the front of his house, she sank down on the cobblestones. A crowd gathered around her.

Limping Maren ran into his yard for help. The Mayor and his guests came to the windows.

“It’s the washerwoman!” he said. “She’s had a bit too much to drink; she’s no good! It’s a pity for that handsome boy of hers, I really like that child, but his mother is good for nothing.”

And the washerwoman was brought to her own humble room, where she was put to bed. Kindly Maren hastened to prepare a cup of warm ale with butter and sugar-she could think of no better medicine in such a case-and then returned to the river, where, although she meant well, she did a very poor job with the washing; she only pulled the wet clothes out of the water and put them into a basket.

That evening she appeared again in the washerwoman’s miserable room. She had begged from the Mayor’s cook a couple of roasted potatoes and a fine fat piece of ham for the sick woman. Maren and the boy feasted on these, but the patient was satisfied with the smell, “For that was very nourishing,” she said.

The boy was put to bed, in the same one in which his mother slept, lying crosswise at his mother’s feet, with a blanket of old blue and red carpet ends sewed together.

The laundress felt a little better now; the warm ale had given her strength, and the smell of the good food had been nourishing.

“Thank you, my kind friend,” she said to Maren, “I’ll tell you all about it, while the boy is asleep. He’s sleeping already; see how sweet he looks with his eyes closed. He doesn’t think of his mother’s sufferings; may our Lord never let him feel their equal! Well, I was in service at the Councilor’s, the Mayor’ parents, when their youngest son came home from his studies. I was a carefree young girl then, but honest-I must say that before heaven. And the student was so pleasant and jolly; every drop of blood in his veins was honest and true; a better young man never lived. He was a son of the house, and I was only a servant, but we became sweethearts-all honorably; a kiss is no sin, after all, if people really love each other. And he told his mother that he loved me. She was an angel in his eyes, wise and kind and loving. And when he went away again he put his gold ring on my finger.”

Using a conservative PPLI asset structuring plan can help you relax in relation to worldwide tax authorities. In a properly structured PPLI policy, you will be in full compliance, yet your assets will be in a tax-free environment, and will pass as a tax-free to the heirs of your choice. We welcome you to take a vacation from more complicated and aggressive strategies, and call us today for a no obligation initial consultation. One Worldwide Toll-Free Number to Serve You: +1 877-811-5846

 

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

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The True Value of Zero = Privacy

Professor PPLI Explains Zero

Part 1

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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 Defines Nothing. We also offer you over the next five Parts, “She Was Good For Nothing,” by Hans Christian Andersen. This charming fairy tale supports our theme of nothing.

Zero is a powerful number. Any number multiplied by zero becomes zero. Yet, zero is also nothing. How does this nothing relate to the topic of our using of Private Placement Life Insurance (PPLI) to structure the assets of wealthy families? Unless you understand how PPLI works with the six principles of Expanded Worldwide Planning (EWP), you will understand  nothing about PPLI. PPLI makes these six principles come alive like nothing else in the realm of asset structures.

First, we will explore the concept of nothing from a mathematical  perspective, then move on to its relationship to EWP, and conclude with how this all relates to one of the six principles of EWP, privacy.

The Power of Zero

Doctor Ian at the Math Forum demonstrates how multiplying any number by zero equals zero.

“1 * 0 = 0

27 * 0 = 0

1,887,457,234,543,243,113,946 * 0 = 0

When you multiply one number by another, you can think of starting at some point (‘the spot marked X’, or wherever) and moving some distance away from it. To move, you need to know two things:

  1) how many steps you’re going to take

  2) how big each step will be

Now, if each step is of zero size, then you can keep taking them, and you’ll never move anywhere. (Move a step of length zero. You’re still where you started. Do it again. Still there. Keep doing it… how many of those steps will you have to take to actually move somewhere?) So any number times zero is still zero.

Also, if you’re not going to take any steps, it doesn’t matter how large a step you would take, since you’re not going to take it. So zero times any number is still zero.”

For our exploration of zero in the world of PPLI tax structuring, we can think of zero as the actual insurance policy that holds a family’s assets in separate accounts in the name of a custodian such as a trust company, which will be in the name of the beneficial owner of the assets–the insurance company. The assets do not change, but how they are structured changes.

Since you can place almost any asset that can be held by a trust company into a PPLI policy, the insurance policy acts like the empty box that we use to explain the concept of zero. The empty box is an abstraction, yet like the PPLI policy, it is the vehicle that can help achieve the six principles of EWP for wealthy families.

Brian Resnick’s article, “The mind-bendy weirdness of the number zero, explained,” on Vox gives us:

Zero is in the mind, but not in the sensory world,” Robert Kaplan, a Harvard math professor and an author of The Nothing That Is: A Natural History of Zero says. Even in the empty reaches of space, if you can see stars, it means you’re being bathed in their electromagnetic radiation. In the darkest emptiness, there’s always something. Perhaps a true zero — meaning absolute nothingness — may have existed in the time before the Big Bang. But we can never know.

Nevertheless, zero doesn’t have to exist to be useful. In fact, we can use the concept of zero to derive all the other numbers in the universe.

Kaplan walked me through a thought exercise first described by the mathematician John von Neumann. It’s deceptively simple.

Imagine a box with nothing in it. Mathematicians call this empty box “the empty set.” It’s a physical representation of zero. What’s inside the empty box? Nothing.

Now take another empty box, and place it in the first one.

How many things are in the first box now?

There’s one object in it. Then, put another empty box inside the first two. How many objects does it contain now? Two. And that’s how “we derive all the counting numbers from zero … from nothing,” Kaplan says. This is the basis of our number system. Zero is an abstraction and a reality at the same time. “It’s the nothing that is,” as Kaplan said.”

Since  we are exploring zero as an abstract concept, we will put it to another use below when we discuss privacy. In a sense everything can only be defined through its relationships with other elements and factors. Not wishing to be alone in stretching our meanings too far let us hear from Humpty Dumpty and Alice in Lewis Carroll’s Alice in Wonderland.

“When I use a word,” Humpty Dumpty said, in rather a scornful tone, “it means just what I choose it to mean—neither more nor less.” “The question is,” said Alice, “whether you can make words mean so many different things.” “The question is,” said Humpty Dumpty, “which is to be master—that’s all.”

How Zero = Privacy?

Now let us equate privacy with Mr. von Neumann’s first box above. Remember this first box is described as an “abstraction and a reality at the same time.” This can equally be said of a term like privacy. Privacy can be defined in the abstract, but it is how it is interpreted in reality that counts.

In many jurisdictions, privacy is considered a fundamental principle. In the U.S the right to privacy is stated in the Fourth Amendment to the U.S. Constitution:

“The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.”

A right to privacy is explicitly stated under Article 12 of the 1948 Universal Declaration of Human Rights issued by the United Nations General Assembly:

“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.”

Caroline Garnham of Garnham Family Office Services in London writes with clarity and understanding about issues affecting wealthy clients. What follows is a telling description of a government’s thirst for tax dollars trampling on its citizens fundamental privacy rights. These are excerpts from her article, “It isn’t fair? Part 3.” How is “tax fairness” playing out in Great Britain today? This article relates recent incidents and key players in the drama.

“Edward Troup, now Sir Edward Troup was appointed Executive Chair and Permanent Secretary to HMRC in April 2016, for which he was knighted in the 2018 new year’s honours list. He was the former head of the firm’s tax department and the most brilliant brain I have ever encountered.

‘Tax law does not codify some Platonic set of tax raising principles. Taxation is legalised extortion and is valid only to the extent of the law’ – a point of with which I concur.

We have tightened our grip on those who deliberately cheat the system and continue to pursue those who refuse to pay what they owe.’

But the question now is, has HMRC gone too far?

The House of Lords Economic Affairs Committee, EAC, published its findings in December 2018, and thinks so!

A ‘careful balance must be struck between clamping down and treating taxpayers’ fairly. Our evidence has convinced us that this balance has tipped too far in favour of HMRC and against the fundamental protections every taxpayer expects.’

In 2000 some employers set up Employee Benefits Trusts for their employees.

This arrangement was considered effective in avoiding tax.

In 2010 HMRC warned that such arrangements were unacceptable, and that those who used such an arrangement had to repay the loan, pay the tax or face fines.

It is clear from what has already been published that the information to be received by HMRC this year from offshore financial institutions under the Common Reporting Standard once analysed will be used to attack settlors of offshore trusts. The first such attacks are expected in about six months.

HMRC has said that it will first go for well-known names with significant assets in trust. It has been advised to attack structures which have Persons of Significant Influence on the basis of sham. It will then look very closely for clauses in the Trust Deed once provided absolving the Trustee from any form of liability and duty to interfere. This it will take as further evidence that the Trust was nothing more than a nominee arrangement and tax the settlor as if no trust had been set up together with 200% penalties.”

Part 1 of “She Was Good For Nothing” by Hans Christian Andersen:

 “The mayor was standing at his open window; he was wearing a dress shirt with a dainty breastpin in its frill. He was very well shaven, self-done, though he had cut himself slightly and had stuck a small bit of newspaper over the cut.

“Listen, youngster!” he boomed.

The youngster was none other than the washerwoman’s son, who respectfully took off his cap as he passed. This cap was broken at the rim, so that he could put it into his pocket. In his poor but clean and very neatly mended clothes, and his heavy wooden shoes, the boy stood as respectfully as if he were before the king.

“You’re a good boy, a well-behaved lad!” said the Mayor. “I suppose your mother is washing down at the river, and no doubt you are going to bring her what you have in your pocket. That’s an awful thing with your mother! How much have you there?”

“A half pint,” said the boy in a low, trembling voice.

“And this morning she had the same?” continued the Mayor.

“No, it was yesterday!” answered the boy.

“Two halves make a whole! She is no good! It is sad there are such people. Tell your mother she ought to be ashamed of herself. Don’t you become a drunkard-but I suppose you will! Poor child! Run along now.”

And the boy went, still holding his cap in his hand, while the wind rippled the waves of his yellow hair. He went down the street and through an alley to the river, where his mother stood at her washing stool in the water, beating the heavy linen with a wooden beater. The current was strong, for the mill’s sluices were open; the bed sheet was dragged along by the stream and nearly swept away her washing stool, and the woman had all she could do to stand up against it.

“I was almost carried away,” she said. “It’s a good thing you’ve come, for I need something to strengthen me. It’s so cold in the water; I’ve been standing here for six hours. Have you brought me anything?”

The boy drew forth a flask, and his mother put it to her lips and drank a little.

“Oh, that does me good! How it warms me! It’s just as good as hot food, and it isn’t as expensive! Drink, my boy! You look so pale, and you’re freezing in your thin clothes. Remember it is autumn. Ooh, the water is cold! If only I don’t get ill! But I won’t. Give me a little more, and drink some yourself, but only a little drop, for you mustn’t get used to it, my poor dear child!”

And she walked out of the water and up onto the bridge where the boy stood. The water dripped from the straw mat that she had tied around her waist and from her petticoat.

“I work and slave till the blood runs out at my fingernails, but I do it gladly if I can bring you up honestly, my sweet child!””

We hoped you enjoyed this article and the beginning of Hans Christian Andersen’s fairytale. Nothing turns out to be an exciting topic for us, and we will continue our lively topic in the next four articles. Please bring us your PPLI questions and inquiries. We enjoy all opportunities to discuss our favorite topic, and bring you an asset structuring tool that offers so many exceptional benefits. Contact Us!

 

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

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PPLI for Wealthy International Families

– Including Wealthy U.S. Families

PPLI’s Beautiful Architecture

 Part 3

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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.

 What does beauty have to do with Private Placement Life Insurance (PPLI)? This is what we will explore in our article today. The tax compliant, conservative PPLI structuring techniques employed by Advanced Financial Solutions, Inc. have their own language of beauty which Leonardo da Vinci exemplified visually in his painting techniques.

We will also answer the question: why it is important for U.S. families, as well as wealthy international families that have a connection to the U.S., to use a life insurance company based in Bermuda, Barbados, or other offshore location that uses a 953(d) election? This PPLI structure offers these families the most advanced, yet fully compliant, asset structuring possibilities that are available. It is not a question of onshore vs. offshore, but what lies between as we will reveal in our article.

How is this connected to Leonardo da Vinci? It is connected to his painting technique called chairocurso or sfuamto. It came from his attention to the area between light and dark.

In the first panel of our Concept Map we explored the dark smoke that comes out of the backyard barbeque. In this article we will concentrate on the area that is between light and dark.

The Encylopedia of Fine Art gives us this definition of sfumato as:

In fine art, the term “sfumato” (derived from the Italian word fumo, meaning “smoke”) refers to the technique of oil painting which colours or tones are blended in such a subtle manner that they melt into one another without perceptible transitions, lines or edges. Leonardo da Vinci (1452-1519) himself described sfumato as a blending of colours “without lines or borders, in the manner of smoke.” It is as if a veil of smoke has been placed between the painting and the viewer, toning down the bright areas and lightening the dark ones, so as to produce a soft, imperceptible transition between the differing tones. Typically involving the use of a number of translucent glazes to create a gradual tonal spectrum from dark to light, Sfumato is classified as one of four painting modes of Renaissance art, the others being Unione, Cangiante, and Chiaroscuro.”

PPLI: The Unifying Structure

So what is between light and dark? In English, the word between comes from the Old English word betweonum, meaning “in the space which separates or midway.” What we call the region between light and dark is in reality a unifying factor. This will be seen more clearly shortly when we delineate the winning combination of entities called: The Unifying Structure.

Wouldn’t your planning possibilities increase many fold if you were considered a U.S. person just for federal income tax purposes, but not regulated by the U.S. Securities and Exchange (SEC)? Remember a PPLI death benefit is exempt from federal income tax purposes. The assets inside a properly structured PPLI policy are shielded from all taxation. If the policy is not under the regulation of the SEC, you can invest in almost any asset that can be held by a trust company:

  • Real estate
  • PFICs, PFHCs, CFCs
  • Closely held companies
  • Operating businesses, if structured properly
  • Image rights
  • Patents and trademarks
  • Stock portfolios
  • Cash
  • Art and collectibles

Yes, you do have the best of two worlds! If you are subject to the U.S. tax system, this combination of an insurance company based in Barbados, Bermuda, or similar jurisdiction that has a 953(d) election, is very much worth your consideration.

In our next article, Part 4, we will give you more detail on the 953(d) election. The Unifying Factor exists when the structure takes advantage of using the insurance regulations of a country like Barbados, Bermuda, or other country that has constructed its insurance code to accommodate the most advanced possibilities of PPLI. When this is combined with a 953(d) election one achieves The Unifying Factor.

Let us see how light and dark is seen from the standpoint of physics courtesy of Astroquizzical from Jillian Scudder, “Can light exist without darkness.” 

“To the great dismay of the great existentialist thinkers, scientifically speaking, this is not that difficult a question to tackle.

From a physics perspective, “light” is just a series of particles zooming through space, a little beam of radiation heading outwards in the cosmos. An individual particle of light usually doesn’t care whether it’s surrounded by lots of other photons, or whether it is off on its own in the universe, traveling a unique path.

Darkness is usually described simply as the absence of light; this description also works pretty well as a physical description. By this standard, “light” and “darkness” are just a binary toggle between “radiation” or “not radiation”.

The question here is asking if you can have only radiation – only light – and skip the “no radiation” part entirely. If you remove darkness, could you still have light? If you’re thinking about darkness and light in terms of a yes/no toggle, then this is perfectly possible. You just hold the toggle at “yes” at all times. The individual light particles won’t care that they’re not letting “not radiation” not have its times – they’re simply travelling forwards.

The ways that our universe produces light are also independent on a lack of light nearby. Stars form light as a byproduct of the incredible pressures at their centers, and are most often formed in clusters – with tens to hundreds of other stars forming nearby. New stars only unveil themselves to our eyes by using the light they give off to burn away the dust and gas that hid them in darkness.

There are two major reasons for darkness in the universe. The first is to be in shadow. The physical blocking of light by an object is an easy way to be in darkness. That’s all night is on Earth, after all – you’re in the shadow of the planet. The second is that the universe hasn’t existed for an infinite amount of time. If the universe had already existed for an infinite amount of time, our skies would be brilliant with light both day and night, as the light from every star in the universe streamed towards us, brightening our skies. In that case, the only sources of darkness would be the shadows. In that universe, perhaps we would be asking the question the other way around – is there any darkness without the light?”

Our last analogous article shows us light and dark in the realm of symbolism courtesy of the Pen & the Pad, “Dark & Light Symbolism in Literature,” by Diane Kampf.

“Symbolism is the use of imagery to emphasize deeper meanings and emotions. Two common symbols used in literature are darkness and light. Darkness is often used to convey negativity: evil, death or the unknown. Light is used to convey something positive: goodness, life or hope. Some of the most-studied literature contains symbolic uses of darkness and light.”

The Bible

It could be argued that the Bible serves as the basis for almost all themes found in Western literature. At the heart of biblical themes is the concept of good vs. evil. Goodness is often portrayed as some element of light. In Genesis, God creates light and calls it good. In the New Testament, Jesus himself is described as the light of the world. The visions of heaven described in the Revelation of John contain imagery of light.

Shakespeare

 Most academic studies in literature include at least one play by Shakespeare and dark and light symbolism abound in many of his works. In “Macbeth,” darkness is used a number of times to symbolize death. The famous line, “Out, out brief candle,” refers to Lady Macbeth’s suicide. Banquo’s torch is extinguished at the moment of his death. In “Romeo and Juliet,” light is used to show Juliet’s beauty and her dazzling influence on Romeo. When Romeo first sees Juliet, he says, “O, she doth teach the torches to burn bright!” (Act I, scene 5, line 45) Even when she dies, her brightness endures. When Romeo finds her in the tomb, he says,

“A grave? O, no, a lantern, slaughtered youth, For here lies Juliet, and her beauty makes This vault a feasting presence full of light ” (Act V, scene 3. lines 84-86)”

We opened our article discussing beauty–and we have not forgotten it. More on beauty in Part 4. We look forward to your comments, and assisting you with your clients that can benefit from PPLI structuring. Please let us know how we can help you!

 

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

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Elegant Simplicity Revealed

The PPLI Insurance Code

 Part 2

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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.

Although the basic framework of Private Placement Life Insurance (PPLI) policies is similar, each client situation is unique, and, therefore, calls for a new area of study. We use our past experience to bring the best possible outcome to a new set of circumstances.

Our past cases serve as a guide for new cases, but not as a rigid set of rules to follow. Previous cases at Advanced Financial Solutions, Inc. become a broad outline that guides us in the “undiscovered country” of the brand new PPLI challenge that presents itself.

Discovery is an endless process. As the Hungarian biochemist Albert Szent-Gyorgyi puts it,

“A discovery is said to be an accident meeting a prepared mind.”

One of our goals in these articles is to prepare the mind to accept such a simple tool to solve complex client issues.

Advisors tend to use the tools that they are familiar with. PPLI is not taught in law schools, so attorneys and other tax advisors must find it in the midst of their law practice. PPLI is also not well known by most insurance agents and brokers throughout the world.

Where did PPLI come from?

Here is a very brief account of its beginnings by Monroe Diefendord, Jr., and Gerald Nowotny, Private Placement Life Insurance, A Sophisticated Investment Solution for High Net Worth Investors.

“The advent of PPLI began around 1992-1993 following the use of similar products (without hedge funds) by large corporations. Al Block, a substantial corporate owned life insurance (COLI) producer, placed the first high net worth policies with CIGNA. The offshore PPLI marketplace developed in 1995-1996 around two separate and distinct themes. Wealthy families emigrating to the U.S. used PPLI and private variable deferred annuity (PPVA) contracts as part of their “in bound” tax planning. Tremont developed a small Bermuda-based life insurance company around the same time.

PPLI policies were created with this issue in mind, namely; “How does the high net worth investor combine the strong tax advantages of life insurance with a life insurance product that offers customized investment options for the sophisticated investor in a product that is institutionally priced?” 

Tax Code vs. Insurance Code

 What is simpler?  “Simplicity is the ultimate sophistication,” said Leonardo da Vinci. What we are calling the Insurance Code are the sections of the tax code that pertain to PPLI. They are for the most part sections 7702, 101, 817(h), and the various revenue rulings that address investor control: Rev. Rul. 77-85, 1977-1 C.B. 12; Rev. Rul. 82-54, 1982-1 C.B. 11; Rev. Rul. 2003-91; Rev. Rul. 2003-2 C.B. 347 (Jul. 24, 2003).

When you compare these sections and revenue rulings to the rest of the entire tax code that address the multiplicity of issues that face wealthy families, the conclusion is clear: what we are calling the Insurance Code is a vastly simpler body of knowledge. But simple is not simplistic, as a PPLI structure solves many planning issues in an elegant, conservative, and straightforward manner.

Sometimes we understand something by comparing it to its opposite. If a PPLI structure is a tool that gives assets the six principles of Expanded Worldwide Planning EWP–privacy, asset protection, tax shield, succession planning, compliance simplifier, trust substitute–what is its opposite? Let us consider a black hole, as just recently, scientists have been able to photograph it.

We further the analogy by positing–PPLI brings light to what can frequently be the complexity, read darkness, of clients’ worldwide assets. Darkness because these assets are usually not structured into a complete easy to understand structure.

Hannah Devlin of the Guardian gives us, “Black hole picture captured for first time in space breakthrough, Network of eight radio telescopes around the world records revolutionary image.

“Astronomers have captured the first image of a black hole, heralding a revolution in our understanding of the universe’s most enigmatic objects.

The picture shows a halo of dust and gas, tracing the outline of a colossal black hole, at the heart of the Messier 87 galaxy, 55m light years from Earth.

The black hole itself – a cosmic trapdoor from which neither light nor matter can escape – is unseeable. But the latest observations take astronomers right to its threshold for the first time, illuminating the event horizon beyond which all known physical laws collapse.

The breakthrough image was captured by the Event Horizon telescope (EHT), a network of eight radio telescopes spanning locations from Antarctica to Spain and Chile, in an effort involving more than 200 scientists.

Sheperd Doeleman, EHT director and Harvard University senior research fellow said: “Black holes are the most mysterious objects in the universe. We have seen what we thought was unseeable. We have taken a picture of a black hole.”

However, the observations do not yet reveal anything about the black hole’s inscrutable interior.

“The black hole is not the event horizon, it’s something inside. It could be something just inside the event horizon, an exotic object hovering just beneath the surface, or it could be a singularity at the centre … or a ring,” said Ziri Younsi. “It doesn’t yet give us an explanation of what’s going on inside.” Ziri Younsi, a member of the EHT collaboration who is based at University College London.”

The last paragraph is of particular interest in that Mr. Younsi is attempting to describe something that in our everyday world on earth could not exist–a black hole. Luckily we do have the vocabulary to describe what we are calling its opposite: a properly structured PPLI policy which delivers the six principles of EWP to wealthy clients worldwide.

We return to the world of tax with an introduction to the draft of an article by Emily Cauble, Professor of Law at DePaul University, on the subject of simplifying the U.S. tax code, “ Superficial Proxies for  Simplicity in Tax Law,” 53 U. Rich. L. Rev. 329 (2019). To continue with our theme of simplicity, as you will read, this is not so simple!

“Simplification of tax law is complicated. Yet, political rhetoric surrounding tax simplification often focuses on simplistic, superficial indicators of complexity in tax law such as word counts, page counts, number of regulations, and similar quantitative metrics.

This preoccupation with the volume of enacted law often results in law that is more complex in a real sense. Achieving genuine simplification — a reduction in costs faced by taxpayers at various stages in the tax planning, tax compliance, and tax enforcement process — often requires enacting more law not less. In addition, conceptualizing simplicity in simplistic terms can leave the public vulnerable to policies advanced under the guise of simplification that have real aims that are less innocuous.

A perennial example involves lawmakers proposing a reduction in the number of tax brackets under the heading of simplifying tax law. In reality, this change does very little, if anything, to simplify law in a meaningful sense, and its truer aim is to reduce progressivity in the tax code.

Although the tax legislation ultimately enacted in December 2017 did not change the number of brackets applicable to individual taxpayers, political discourse preceding its enactment once again touted a reduction in the number of tax brackets as a simplifying measure.”

If you wish to keep things simple and at the same time achieve results not possible with other structuring methods, please contact us today for a free initial consultation.

 

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

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Transformation Abounds

Professor PPLI and the Caterpillar

Part 5

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Our next series of articles will comprise an in-depth look at the five main components of our PPLI Concept Map: Professor PPLI to the Rescue.  

In our earlier articles we entertained several views on the word rain, and explored various ways that the English language used the word rain in colorful ways to describe its effect on a client’s assets. Professor PPLI has a rye sense of humor! You will receive more in this vein further in our article from Lewis Carroll’s Alice in Wonderland. Professor PPLI meets his match in the person of the Caterpillar.

We also cast life insurance, in particular Private Placement Life Insurance (PPLI), in the role of a protective outer garment that can protect client’s assets against the assault of the rain.

Now I ask you to exchange this protective outer garment for one of nature’s most magical acts: the Resolving the Contradiction of Changeless Changetransformation of a caterpillar into a butterfly. The cocoon, like PPLI, does indeed provide protection, and the amazing transformation that occurs inside the cocoon is analogous to the transformation of client’s assets once they enter the PPLI policy.

From the Scientific American, Ferris Jabr brings us

“How Does a Caterpillar Turn into a Butterfly? To become a butterfly, a caterpillar first digests itself. But certain groups of cells survive, turning the soup into eyes, wings, antennae and other adult structures”

“As children, many of us learn about the wondrous process by which a caterpillar morphs into a butterfly. The story usually begins with a very hungry caterpillar hatching from an egg. The caterpillar, or what is more scientifically termed a larva, stuffs itself with leaves, growing plumper and longer through a series of molts in which it sheds its skin. One day, the caterpillar stops eating, hangs upside down from a twig or leaf and spins itself a silky cocoon or molts into a shiny chrysalis. Within its protective casing, the caterpillar radically transforms its body, eventually emerging as a butterfly or moth.

But what does that radical transformation entail? How does a caterpillar rearrange itself into a butterfly? What happens inside a chrysalis or cocoon?

First, the caterpillar digests itself, releasing enzymes to dissolve all of its tissues. If you were to cut open a cocoon or chrysalis at just the right time, caterpillar soup would ooze out.”

Like the transformation of the caterpillar into a butterfly, the of re-characterizing of assets inside a PPLI becomes an equally magical experience. Once assets are placed inside the PPLI policy, these assets take on the six principles of Expanded Worldwide Planning (EWP): privacy, asset protection, succession planning, tax shield, compliance simplifier, and trust substitute.

We are not finished with the Caterpillar, and now reveal him in a new guise. Because Professor PPLI has such a rye sense of humor, we now switch to a master of quizzical, British humor, Lewis Carroll, in Alice in Wonderland.  The very idea of raining inside an insurance policy is puzzling, and brings to mind an equally puzzling exchange between Alice and the Caterpillar.

“’Who are you?‘ said the Caterpillar.

This was not an encouraging opening for a conversation. Alice replied, rather shyly, ‘I — I hardly know, sir, just at present — at least I know who I WAS when I got up this morning, but I think I must have been changed several times since then.’

‘What do you mean by that?’ said the Caterpillar sternly. ‘Explain yourself!’

‘I can’t explain myself, I’m afraid, sir’ said Alice, ‘because I’m not myself, you see.’

‘I don’t see,’ said the Caterpillar.

‘I’m afraid I can’t put it more clearly,’ Alice replied very politely, ‘for I can’t understand it myself to begin with; and being so many different sizes in a day is very confusing.’

‘It isn’t,’ said the Caterpillar.

‘Well, perhaps you haven’t found it so yet,’ said Alice; ‘but when you have to turn into a chrysalis — you will some day, you know — and then after that into a butterfly, I should think you’ll feel it a little queer, won’t you?’

‘Not a bit,’ said the Caterpillar.

‘Well, perhaps your feelings may be different,’ said Alice; ‘all I know is, it would feel very queer to me.’

‘You!’ said the Caterpillar contemptuously. ‘Who are you?’

Which brought them back again to the beginning of the conversation. Alice felt a little irritated at the Caterpillar’s making such very short remarks, and she drew herself up and said, very gravely, ‘I think, you out to tell me who you are, first.’

‘Why?’ said the Caterpillar.

Here was another puzzling question; and as Alice could not think of any good reason, and as the Caterpillar seemed to be in a very unpleasant state of mind, she turned away.

‘Come back!’ the Caterpillar called after her. ‘I’ve something important to say!’

This sounded promising, certainly: Alice turned and came back again.

‘Keep your temper,’ said the Caterpillar.

‘Is that all?’ said Alice, swallowing down her anger as well as she could.

‘No,’ said the Caterpillar.

Alice thought she might as well wait, as she had nothing else to do, and perhaps after all it might tell her something worth hearing. For some minutes it puffed away without speaking, but at last it unfolded its arms, took the hookah out of its mouth again, and said,

‘So you think you’re changed, do you?’

‘I’m afraid I am, sir,’ said Alice; ‘I can’t remember things as I used — and I don’t keep the same size for ten minutes together!’

‘Can’t remember what things?’ said the Caterpillar.

‘Well, I’ve tried to say “How doth the little busy bee,” but it all came different!’ Alice replied in a very melancholy voice.”

Alice’s state of mind reminds me of tax advisor who doesn’t understand PPLI. These advisors can’t conceive of an insurance policy accomplishing more than a trust. But in a sense, this can be seen with a little reflection–these advisors are mostly in the business of creating trust, or giving tax advice, and think that insurance is beneath their dignity. Much like Alice regards the Caterpillar.

Ironically, most PPLI policies are owned by trusts. PPLI greatly expands the trust’s possibilities by coupling amicably with a properly structured PPLI policy.

Tax in the Real World 

I think most people would agree that in an ideal society, taxation would promote the common good. But putting this into practice is extremely difficult. Who to tax and how much to tax is much debated throughout the world, and countries approach this dilemma in many different ways, depending on the type of government and their societal goals.

Strong central governments are able to implement their programs with greater ease than in societies that are more pluralistic and democratic, but this is still no guarantee that the programs implemented will be successful, and promote the common good.

Promoting the common good reminds me of the quest to rid the world of the One Ring in J. R. R. Tolkien’s Lord of the Rings. Written during the time of World War II, Tolkien’s epic novel offers us an example of a quest to rid the world of a device, the One Ring, that had the ability to unleash destruction and enslave the peoples of Middle Earth. In the end, service and steadfast devotion won out over greed and power.

At Advanced Financial Solutions, Inc. our quest is to give you maximum tax efficiency and privacy while maintaining your compliance with the world’s tax authorities. Our PPLI structuring uses a simple, straightforward, and traditional tool–life insurance. Our service and steadfast devotion to your needs produces exceptional results. Please let us know your situation so we can create a plan that works for your own unique set of circumstances.

 

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

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Assets for a ‘Rainy Day’

PPLI Keeps You Dry

 Part 2

 Our next series of articles will comprise an in-depth look at the five main components of our PPLI Concept Map: Professor PPLI to the Rescue.  

“I understand it is raining on my assets.”

This Private Placement Life Insurance (PPLI) client is frustrated and resorts to a seemingly obtuse statement to his advisor. Let us examine his statement more closely. If something valuable would be left out in the rain, it might be spoiled. Indeed, even a PPLI asset can take a turn for the worse.

Perhaps he intended to use the colloquial phrase it is “raining on my parade.” Perhaps English is not this client’s first language, and he is using an idiom of his first language, and translating it literally into English. But whatever is occurring with the rain and his assets, IT IS NOT GOOD. At this point, it is doubtful whether PPLI is of any use to this dissatisfied client.

In the Introduction to her book on idioms, As Right As Rain, Caroline Taggart tells us:

“The Oxford English Dictionary describes it as ‘a group of words established by usage having a meaning not deductible by the meanings of the individual words’ (my italics); other dictionaries emphasize the same point. An idiom, by definition, doesn’t make sense.

Isn’t that fun? Or is it just baffling?

Take the book title, for instance. Why do we say ‘as right as rain’ rather than ‘as right as snow’ or ‘as right as wind’? Or why should rain, or any other climatic feature, be more right than anything else?

Why, to take another example, why do we cry over spilled milk rather than spilled wine or spilled tea? Why is a wild idea pie in the sky or a piece of surprising news a turn up for the books?

A foreigner learning English might well ask these questions and be told, ‘Because it just is, OK?’ That’s because a newcomer to the language has to learn the exact form of the idiom–nine times out of ten, if you translate it from one language to another, it means nothing, and if you alter a single word, it means even less. (To give someone the cold elbow? To bring home the pork? I don’t think so.) But if you want to delve deeper, to find out where these apparently absurd expressions come from in the first place, you might choose to pick up this book. It’s an attempt  to reduce the bafflement, and increase the fun.”

The expression “as right as rain” offers a positive response to this phrase, but the client’s  continence suggests this client is not happy.  Enough of our conjectures. Let us give this client a persona.

We take the liberty of making him Gary Barnett, who “remade Manhattan’s skyline and spurred a supertall-tower boom with One57. In a faltering real estate market, he’s hoping to sell the ultra-rich on Central Park Tower,” according to an article in the Wall Street Journal, “The Man behind Billionaires’ Row Battles to Sell the World’s Tallest Condo,” by Katherine Clarke and Candace Taylor.

Mr. Barnett could use our services, as PPLI can provide excellent structures for real estate. As we have now made him our client, let us learn something about him from the Wall Street Journal article we mentioned previously.

“A self-described “poor boy from the Lower East Side,” Mr. Barnett grew up as Gershon Swiatycki, the son of a Talmudic scholar. His entry into the world of luxury goods came in 1980s, when he met his late wife Evelyn Muller, whose father owned a diamond business. Mr. Barnett traded precious stones in Belgium for over a decade before starting to invest in U.S. real estate.

Arriving at the sales office in a dark suit with black sneakers and a bold, flowered tie that he said is “probably 20 years old,” the 63-year-old developer is an unlikely purveyor of luxury homes. An observant Jew who largely eschews the flashy trappings of the industry, Mr. Barnett lived in Queens until moving recently with his wife and children to the heavily Orthodox suburb of Monsey, N.Y., about an hour’s drive north of the city. (He keeps a one-bedroom unit at One57 to make more time for work.)

Mr. Barnett’s refusal to give up the antiquated flip phone is a source of indulgent eye-rolling from colleagues. He often avoids computers, said a person who has worked with him; instead, his assistant prints out his emails and leaves them on his desk, where he annotates them in what one employee describes as “serial-killer scrawl” for staff to decipher.

He’s “a total nerd,” real-estate agent Nikki Field said affectionately. “He’s not a New York developer personality in any way.”

Other Manhattan developers thought Mr. Barnett was crazy when he started building One57 in 2010, the depths of the real-estate downturn. And after no major U.S. lenders would back him, he turned to the Middle East to obtain financing from two of Abu Dhabi’s wealthiest investment funds.

His gamble paid off handsomely. As One57 started sales, U.S. economic growth snapped back. As one of the few new luxury condo buildings on the market, One57 attracted billionaires from Russia, China and the Middle East. The condominium is the first ever New York City building to break the $100 million threshold for a single condo.”

Frequently, at the beginning of a discussion on a topic new to them, clients have an incomplete or erroneous understanding of the topic. An advisor does well not to trample on the client’s understanding. The process of understanding frequently needs to occur in an atmosphere where there is a respectful give and take.

In the end, unless a true mutual understanding is reached no meaningful understanding has been achieved at all between the client and the advisor, and the client usually does not become a client of the advisor. In the end, what is left is a topic or concept with two different understandings, and both understandings think that they are correct.

What if one of these understandings is actually false?

There have been many discussions of late on “fake news,” what constitutes it, and how it is created, and how it affects our lives. Let us examine the strange case of Claas Relotius.

With PPLI our company is careful to discern at the beginning of a discussion whether PPLI is in fact the right planning choice for the client. By analyzing the structure thoroughly, we insure a more successful PPLI outcome at the end of the process.

Here we have an award winning journalists, who evidently was the perpetrator of “fake news” for many years. We are grateful to another Wall Street Journal article, “Germany’s Der Spiegel Says Reporter Made Up Facts,” by Bojan Pancevski and Sara Germano.

“BERLIN—Europe faces its largest journalistic scandal in years after Der Spiegel, the continent’s biggest-selling news magazine, said one of its star reporters fabricated facts in his articles for years.

The magazine’s disclosure, which came after a colleague raised concerns about a recent piece on supporters of President Trump in rural America, was made as Europe’s established media faces attacks by populist forces at home and abroad.

Claas Relotius, an award-winning journalist, resigned from the magazine last week after admitting to making up parts of his reporting in the past decade, Der Spiegel said late Wednesday.

Mr. Relotius couldn’t be reached for comment.

According to the magazine, Mr. Relotius, 33, invented characters, dialogue and events in his coverage of subjects ranging from a Guantanamo inmate who no longer wanted to leave the prison to civil war orphans in Syria.

“We must see what control mechanisms failed, whether they did or whether we were negligent,” Steffen Klusmann, who will become the magazine’s editor in chief next year, said in a video interview posted on the magazine’s website.

Major news organizations have faced a number of crises in recent decades over reporting that was later determined to contain fabricated material.

In seven years writing for Der Spiegel, Mr. Relotius became one of Germany’s most highly regarded journalists, accumulating 10 coveted awards.”

How does one protect oneself from the rain?  Usually by providing some cover, like a waterproof outer garment. Let us cast life insurance into the role of this protective outer garment. In our next article, we will divulge how PPLI provides this protection. Please let us know how we can keep your assets ‘as right as rain.’ PPLI can solve a myriad of asset structuring needs. Your suggestions and comments are very welcome. Please write them at the bottom of this article or Contact Us directly.

 

~ by Michael Malloy, CLU, TEP

Michael Malloy-CLU-TEP

 

 

 

 

 

 

 

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