EWP Stories-4

Expanded Worldwide Planning
International Tax Planning
Stories
Part 4:
Succession Planning

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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. A PPLI policy purchased outside the home country of the owner or policyholder is a method to mitigate these forced heirship rules.

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. 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.

This element of EWP, (Expanded Worldwide Planning), 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 structured PPLI policy, as well as all the other elements of a wealth owner’s financial and legal planning.

Here is a list of countries where forced heirship laws exist today in a variety of forms:

  • France
  • Switzerland
  • Germany
  • Turkey
  • Mexico
  • Brazil
  • Argentina
  • Italy
  • Spain
  • Russia
  • Japan
  • Saudi Arabia
  • Yemen
  • Jordan
  • Iran
Part 1

Andre Simmons toyed with staying at the Hotel Cala di Volpe on Sardinia’s Costa Smeralda. He could easily afford the $41,000 nightly rate for the penthouse suite, but preferred staying on his superyacht that was anchored in Porto Vecchio near the village of Porto Cervo.

Andre liked people, so was feeling a little lonely, as he had given his crew the morning off after their voyage from Miami, Florida. They had had a rough crossing on the Atlantic, dangerously riding 30 foot swells through a nasty storm that had unexpectedly come upon them. By contrast the water in Porto Vecchio was like glass with barely a ripple on the mirror-like surface.

The weather was perfect. He decided to go for a swim before his usual breakfast of coffee, bagel, and cream cheese. The bagel brought to mind New York City and his attorney. Delaying his breakfast for a swim did not bother him, but delaying action on his attorney’s advice was causing him some worry. He had reached a state of mental paralysis on what to do about passing his billions to his wife and children. Maybe he could think more clearly after a long swim.

Andre put on his bathing suit, and went through the spa center on the lower deck which had direct access to the water. The first plunge brought an accelerating tingle of pleasure. He was powering through the water, aided by just his own arms and legs. In these first moments in the water, he felt like a splendid fish, and not the owner of a magnificent, 150 ft., superyacht that had all the amenities money could buy.

The salt water was buoyant like only the Mediterranean could be. Andre was a strong swimmer and headed out of the bay. Soon his yacht had shrunk to the size of a much more modest craft.

At first it seemed like an annoying muscle pain in his chest, as he vigorously swam out to sea. The pain persisted. His youthful athletic training told him just to ignore it. He probably needed to do more stretches. At 48 his body was beginning to show its age.

The burning pain now became intense. He saw nobody in sight. It was 6:30am. No other swimmers, no other boats, nobody to hear a cry that he now could not make.

In view of this most exclusive enclave of wealth, this gorgeous seascape took him. He helplessly sank. Water poured into his lungs. He continued to sink. This beautiful bay had claimed a billionaire. He could do nothing but yield to nature’s will.

If his dead body is not found soon, the sharks will find it. His estate will suffer the same fate, but his $10billionU.S. of assets will be found, and, since he failed to leave a will, it will meet a similar fate: not an orderly deposition of this vast worldwide financial empire, but a hacking and a continued hacking until those contesting this fortune wished it would stop. It will not stop until the last legal contestant makes their last legal challenge in five to ten years hence.

A Brief History of Forced Heirship

The notion of forced heirship originated with Germanic tribe tradition, which sought to protect the family’s legacy and tradition. The deceased’s personal property was divided into thirds–the widow’s part, the children’s part, and a third part, which consisted of clothes, weapons, and farm animals.

Forced heirship is mostly prevalent amongst civil law jurisdictions and in Muslim countries, but also occurs in other major countries such as the U.S.A. (in Louisiana) and Japan.

There is a substantial difference between civil law jurisdictions and common law jurisdictions. Civil law is rooted in Roman law, and has the functions of the legal system codified and compiled into a collection readily available for citizens to reference. This legal structure requires the judge to rely on the black letter meaning of the law and disregards individual interpretation.

Common law, however, has its rules and regulations administered by judges. This type of individual judicial administration and decision-making allows enforcement of the law to vary on a case-by-case basis rather than on the black letter meaning of the law.

Civil law jurisdiction laws are heavily based on the German Code (BGB) and the Napoleonic Code. Today, the civil law legal system has become the most widespread of all the legal systems globally. Continental Europe, as well as many former European colonies, has adopted and evolved their laws to abide by the civil law structure. This has led to a continued reliance on the notion of forced heirship. The tradition of forced heirship has historically provided a means for heirs to be guaranteed a share in a decedent’s estate

Civil Law vs. Common Law Examples of Conflict

International families can eliminate the vagaries of court decisions which hinge on details of the law like inter vivos transfers versus testamentary transfers by using a properly structured PPLI policy. This policy will secure their own estate planning wishes using a legally binding contract between the wealth owner and an insurance company with no need of court decisions in any jurisdiction.

United States and Spain

In general the domiciliary jurisdiction at the time of a testator’s death controls movable property. But in this case (Wyatt v. Fulrath, 211 N.E.2d 637,N.Y. 1965) the New York court ruled that the expressed agreement by the couple that New York law was to apply to these assets that were moved to New York. The ruling was sufficient to allow New York jurisdiction and law to override Spanish law.

The law of Spain would have prevented either spouse from agreeing that community property goes entirely to the survivor on the death of either, which was their expressed agreement in New York. Under Spanish law, the surviving spouse would only receive half of the community property deposited in the joint New York bank accounts.

United States and France

In a 2009 New York case (Re Meyer 876 NYS 2d 7, App Div 1st Dept 2009) the court made a distinction between a lifetime, inter vivos, transfer and a transfer at death by will or trust. At issue were gifts of property made during lifetime by a person who was allegedly a French domiciliary at the time she made the gifts.

The court ruled that the gifts were not subject to forced heirship claims because: “the validity and effect of these transfers, as well as the capacity to affect them, are governed by the law of the state where the property was situated at the time of the transfer.”

The Court went on to say that: “[w]e perceiver no valid policy distinction that would allow a nonresident testator to avoid French heirship claims by involving New York law with respect to assets physically situated in New York…but not with regard to previous inter vivos transfers of assets physically situated [in New York].”

Part 2

Charlotte Simmons could not say exactly why she found herself standing before Theodore Gericault’s painting, The Raft of the Medusa, at the Louvre Museum in Paris. For Charlotte museums were akin to a religious experience: a deeply internal religion of her own devising, not a religion with a recognizable label.

The tragic scene of shipwreck depicted so dramatically by Gericault had called out to her that morning, as she left her apartment near the Louvre. She was one of the first to arrive at the museum, and had the painting to herself.

This very large painting (16 ft. by 23 ft.) depicts the moment of rescue for a hurriedly constructed raft that originally held at least 147 people that was set adrift from a French naval ship off the coast of West Africa in 1816. All but 15 died before their rescue, and those who managed to survive endured starvation and dehydration and practiced cannibalism.

Her cell phone buzzed in her purse, and she sought refuge on the large, black bench in front of the painting, taking the phone against her ear, and leaning over to hide it, but the guard spotted her phone, and began moving stridently toward her.

“Bonjour,” she said in her unrecognizable, cultured accent, the product of living in three continents.

“Is this Mrs. Simmons,” said a voice devoid of any emotional signposts.

“Yes, it is.”

“Madame” began the guard. She heard her speaking English, and continued, “No mobile phones, Madame, you must leave the gallery now.”

“I have terrible news for you. Your husband is dead.”

The guard then became quite agitated, “Madame, I must insist.”

Charlotte looked up imploringly to the short, bespectacled, young woman that now stood directly above her, tears ruining the makeup on her exquisitely featured face. She barely heard the rest of the monotoned, formal rendition of finding Andre’s body floating a few hundred meters from his superyacht. The voice concluded with an obligatory condolence, and a phone number for the police in Porto Cervo.

The guard now had placed her hands on her hips. Charlotte lifted her head to see her exasperated, reddening face, now inches from hers, as she tried to make himself understood, thinking Charlotte did not understand her heavily accented English.

She became aware that others on the bench had moved away, her anguished face pushing them away, clearing a space for her, a space that held an emotion that these strangers could feel without knowing the details.

“Madame, my husband has drowned; he is dead.” The guard’s arms fell to her sides. She understood, and as if to make her meaning clearer, pointed awkwardly at The Raft of the Medusa. She was to learn later how fully she understood her grief. She meekly walked out of the room with her head bowed as if in prayer.

Charlotte returned to The Raft of the Medusa. The ocean took my Andre. This vast expanse of liquid that we mostly float above. He has sunk below to a realm no longer within reach of my love. The finality of death penetrates slowly, especially if there is no body to bear witness to a piercing grief.

She continued to stare at the painting, attempting to extract a meaning that would help her. She was now a survivor like those on the raft who had spent thirteen days at sea. The very number of days she had been absent from Andre, who is now absent from her forever.

Why a PPLI Structure Is Best

The laws governing these PPLI contracts are written specifically to accommodate international wealthy families. These laws enhance not only succession planning, but provide excellent asset protection, privacy, and tax efficiency.

A PPLI policy is not a uniquely civil-or common-law creation. Its treatment in law is more uniform than planning solely with entities like trust, foundations, and LLCs. The unique design of a PPLI policy can greatly assist in a move between civil-and common-law jurisdictions.

This can be done without the requirement of a will or trust. Upon death of the insured person(s), the value of the PPLI policy plus any death benefit is paid directly to the beneficiaries listed in the policy, and separate from probate.

If a PPLI policy is held by an entity, such as a trust, that is compliant in the beneficiary’s country of residence, tax deferral and investment flexibility can still be preserved, even if the trust is disregarded as a foreign entity.

Gift and estate planning for life policies frequently involves establishment of a specially structured insurance trust for the benefit of a spouse and/or children and descendants. The trust acquires the policy with the premiums being contributed to the trust by the settlor/insured. In this manner, the death benefit would be paid to the trust free of estate taxes rather than going outright to the surviving family members after the payment of estate taxes.

PPLI policies also could invest in PFICs without creating adverse tax consequences. From a US perspective, US persons should generally be aware that most non-US collective investment vehicles will be classified as PFICs for US purposes and subject to adverse tax charges upon generating income and gains.

Part 3

Edward Lawson had a mathematical mind. Looking out his New York Park Avenue office window onto the neatly arranged winter bedding plants, he spotted the red and green variegated ornamental cabbage peaking through the snow; seen from his tenth story window, they reminded him of little zeros.

He was taking a secret pleasure in the number and timing of the phone calls he was receiving of people soliciting a share of Andre Simmons estate. It was averaging one call every fifteen minutes. As Andre’s attorney for many years, Edward had assumed the role of executor of his estate, although it would probably take years to find out who the final executor might be. He had the relaxed air of someone who knew his difficult task was not permanent, and does not bear full responsibility for the outcome.

His job was to gather together the loose threads of Andre’s substantial financial empire. He thankfully did not have to be accountable to the many beneficiaries, many of whom would be discredited and found to have false claims against the estate by whatever court would have the ultimate authority for the case.

He knew a call was due, and here it came. “Edward Lawson.”

“Edward, I have Herve Laurent, a french attorney for you. Shall I put him through?”

“OK, Nancy.”

“Mr. Lawson, I represent Bernadette Simmons, Andre Simmons’ first wife. I wish to make my client’s situation known to you. She says she has proof that Mr. Simmons was married to his second wife in New York before his French divorce with my client was finalized, therefore, under French succession law, she has rights to a portion of his estate, as well as her two children. They will be represented each by their own legal counsels.”

In the two weeks, he had been handling this case, startling developments were routine. “Thank you Mr. Laurent. I will put you into the case. No guarantees that I can keep you informed, so please check back as things progress.”

Turning to his computer, he noted this in the file, and reflected that if France was to adjudicate the estate, and nullify the second marriage to Charlotte, this indeed would be a new development, but it was much too early to speculate.

It was time to summarize the entire situation, in case the managing partner asked him about the case. This is how it stood presently just a month after Andre’s death:

  • Andre has over a dozen business entities in multiple countries that must be sorted out. In these countries there are other partners and directors who will have conflicting claims concerning the ownership and continued operation of these companies.
  • Even though Andre Simmons is a U.S. citizen and taxpayer, New Zealand and France could claim taxes from him because he had residences there, and spent considerable time in these countries. He had extensive economic ties to all three countries with a large sheep farm in New Zealand, vineyards in France, and real estate in New York City. All three countries will make arguments that his center of economic activity or permanent place of adobe occurred in their country, although it is possible to be declared a tax resident in more than one country.
  • The U.S., France, and New Zealand have double taxation treaties with each other, and tie breaker provisions in case of conflict, but it will be far from simple to come to a decision.
  • As to future potential beneficiaries through blood dies, if past cases are any indication, they will be appearing daily. The various courts involved will be asking all these unsubstantiated beneficiaries to take DNA tests to prove a biological connection to Andre.
  • The allegation concerning the timing of his divorce to the first wife, and remarriage to Charlotte must be thoroughly investigated.

“Zero times any number equals zero,” Edward said aloud to himself. Zero was the image that came to mind at his conclusion of the summary. What a disgraceful waste of legal brain power and money. This case has the potential of another Bleak House. (The novel by Charles Dickens that depicted an epic estate contest that ended in all the estate being consumed by legal fees.) Of course, all this could have been avoided with proper planning, but now each new complexity would add months if not years to the process, and drain the estate value substantially.

Edward thought drowning the estate sounded better, but remembered Andre’s death, and forced himself back to his computer screen.

Unwelcomed Complexities by Country

The laws of succession and inheritance vary widely by country. By reviewing the laws of France, China, Russia, and Saudi Arabia, we give you a sampling of the complications faced by wealthy international families throughout the world. Image a family that might have family members and assets in several of these countries, and the daunting task of settling their estate. If a properly structured PPLI policy is used, many of these complications can be avoided.

France

Before the Napoleonic Code, France did not have a single set of laws; law consisted mainly of local customs, which had sometimes been officially compiled in “custumals” (coutumes), notably the Custom of Paris. There were also exemptions, privileges, and special charters granted by the kings or other feudal lords. During the Revolution, the last vestiges of feudalism were abolished.

France’s Napoleonic code dictates how your assets must be distributed on your death. The key points are:

  • For French residents, succession law applies to worldwide assets (excluding real estate outside France).
  • For non-residents, French real estate is subject to the succession law rules.
  • Assets do not automatically pass in accordance with your will.
  • Children are protected heirs, inheriting up to 75% of your estate.
  • Spouses are not automatically protected.
  • You can use the EU succession regulations, termed Brussels IV, to opt for the succession law of your nationality instead of French law.

Brussels IV has been in place since August 17, 2015. Its intention was to simplify issues relating to succession across the EU. The objective of Brussels IV is to ensure that only one country’s laws apply to the deceased’s estate. The laws of the country in which a person is habitually resident at their death will apply to them, unless they have made a declaration during their lifetime.

Brussels IV gives residents in EU countries (with the exception of the UK, Denmark and Ireland) a single set of rules which govern the jurisdiction and applicable law in succession law matters. The new rules look primarily to the deceased’s place of habitual residence, but an individual may elect that his succession should be governed by the law of his nationality (whether or not he is a national of an EU member state). The new rules also introduced a European Certificate of Succession, aimed at facilitating the administration of cross-border estates.

China

Unlike common law countries, China possesses few legal instruments for processing a solid estate plan. But because China does not levy estate or inheritance tax, nor does it collect a gift tax, there is less demand for estate planning, which tends to focus on tax savings. However, family business succession is looming large in China, with many first generation entrepreneurs approaching retirement.

Under Chinese inheritance law, when a valid will is made, it is generally respected. So these estates pass to the beneficiaries designated in the will. When a person dies without having a valid will in place, the estate passes to heirs under the statutory succession rules.

China has a limited forced heirship regime under which dependents of the deceased are entitled to succession to the extent that they otherwise cannot support themselves, for example, those who are unable to work and have no source of income. As such, a family trust may be liable to forced heirship claims against trust assets.

Under the Chinese statutory succession rules, the first half of the estate is distributed to the spouse of the deceased as community property. The rest is distributed to the spouse, the parents and the children of the deceased in equal shares. The limited forced heirship regime cannot be avoided. All the assets, including those received by beneficiaries in other jurisdictions, are taken into account for the forced heirship regime.

For statutory succession purposes, the succession rules of the habitual residence of the deceased at the time of their death will apply, unless the asset is a real estate located in China where the Chinese succession rules will automatically apply. This can be avoided by making a will by the foreign national.

In the absence of a will, Chinese statuary succession rules apply to the deceased’s real estate in China even if the deceased is a foreign national. Chinese laws do not recognize the doctrine of renvoi. By invoking renvoi, the court could rule that the law of another country would be the most appropriate law to apply in this case.

There are no other taxes on death or lifetime gifts, unless the gifts would be deemed as a transfer of assets, for example, gifts of shares or real estate between non-family members, in which case the individual income tax on deemed gains will be imposed on the transferor.

Russia

Russian inheritance laws cover everyone who is domiciled (i.e., has his or her usual place of living, but not necessarily his or her nationality) in the Russian Federation, and also covers everyone including foreigners who own property in the Russian Federation.

Minor and disabled children of any deceased person domiciled in Russia, disabled spouse and parents, and any disabled dependants of the deceased must inherit at least one-half of the share each of them is entitled to inherit by law, irrespective of any testamentary provisions.

There are two types of inheritance: testamentary inheritance (when there is a will of a deceased) and intestate inheritance (in the absence of a will of a deceased and in other statutory cases). The deceased’s estate incorporates the items and other property the deceased owned as of the date of the opening of the inheritance, including property rights and liabilities. Rights and liabilities inseparable from the personality of the deceased (e.g., rights to alimony), personal incorporeal rights and other intangible assets are not included in the estate.

If no provisions are made in prospect of death, a complex statutory order of intestate inheritance is applied to all persons covered by Russian inheritance law. The heirs-in-law (individuals only) include children of the deceased, his or her spouse and parents, brothers and sisters, other relatives and disabled dependants of the deceased.

The tax on the assets transferred through inheritance or donation that previously existed, was abolished effective January 2006. Alongside the abolishment of inheritance and gift tax, personal income tax applies in certain instances where individuals receive gifts.

In certain cases, individuals receiving income through inheritance may also be subject to personal income tax as a regular taxable income. There is no inheritance tax in Russia. There is no gift tax in Russia, although in certain cases personal income tax may be levied. There is no real estate transfer tax in Russia, although in certain cases personal income tax may be levied. There is no net wealth tax in Russia.

Russian tax residents are taxable in Russia on their worldwide income, generally, at a 13% tax rate (including, but not limited to, gifts in various forms and inheritance in special cases). For some types of income, such as dividends and material benefit, different tax rates are applied. Russian tax nonresidents are taxable only on their Russian source of income at a 30% tax rate on most types of taxable income (including, but not limited to, income earned in Russia).

There are currently no estate tax treaties between the Russian Federation and other countries.

Saudi Arabia

To understand the basis for Islamic inheritance law, you will need to be familiar with inheritance laws in Arabia pre-Islam. The sole inheritance was given to the asaba (male relatives) of the deceased. The surviving male relatives inherited in order of family position; the son superseded the father, the father superseded the uncles and so on.

Islam has kept the position of the male inheritance principals, but with slight modifications to give women more security. Pre-Islam men inherited, but were not required to care for the females in their families with the inheritance; Islam encourages the opposite. In Islamic Inheritance, the male inherits twice that of the female, but is encouraged to care for the single women in his family from it.

Inheritance between non-Muslims is governed by the will, which has to be registered with the Shariah Court, or witnessed by two adult Muslims. Non-Muslims cannot normally inherit from Muslims and vice versa, but if there is a will which applies to less than 30% of the estate, that portion of the estate can be transmitted across religious lines. There are no inheritance taxes in Saudi Arabia.

Saudi Arabia is governed by Shariah Law, which is a religious law that is based on the Quran and the teachings and practices of the Prophet Mohammed (the Sunna). It was borne out of the Islamic tradition governing all aspects of life. It regulates all of human activity, national and international, public and private, criminal and civil and is applied by courts.

Ultimately, Shariah Law has its own standards in resolving and enforcing sanctions on various cases. As such, in cases of estate settlement, inheritance and wills, certain rules apply. These cases take into consideration the allocation and distribution of shares/properties specified by the defendant or deceased to his family, company and others, following the rules of Shariah Law.

With regard to the law of inheritance, the Quran specifies that fixed portions of the deceased’s estate must be left to the so-called “Quranic heirs”. Generally, female heirs receive half the portion of male heirs. A Sunni Muslim can bequeath a maximum of a third of his property to non-Quranic heirs. The residue is divided between agnatic heirs.

Part 4

In times of grief we turn to family. We might even discover new family members, as we seek to quench the pain of our loss. This was the case with Charlotte Simmons, who found herself again at the Louvre Museum in front of The Raft of the Medusa.

She reflected on the disquiet of her own family who were scrambling to take every advantage they could to divide the family wealth, and receive the most possible for themselves, not unlike those on the raft, who had formed a bizarre family of sorts for their thirteen horrific days at sea together. These reflections did not give her all the relief she sought, but at least gave her a new perspective on her own situation.

She glanced to the side, and saw the same museum guard that had admonished her cell phone use the other day. The museum guard began, speaking rapidly in French, “Madame, I will be brief because I am on duty and need to observe the gallery as I speak. My apologies, I do not wish to intrude, but must tell you something about my life, about our lives. I have read of your loss in the newspapers.” Charlotte was startled, but with a slight nod asked her to continue.

The museum guard nervously told her story, taking in the gallery, and training her soft, kind brown eyes on Charlotte’s exquisite face. The museum guard, Rachelle Allard, was working part-time as a guard at the Louvre while studying at the Sorbonne University for a degree in Classical Literature. Several months ago her husband had been washed ashore in his native Brittany on the northwest shore of France. He had also drowned, in an accident while sailing near his parents’ home. And it turned out that Rachelle was a descendant of Charlotte Picard, the only woman who survived the sinking of the ship, Medusa, the same ship which inspired the painting that hung in front of them.

Charlotte remained silent, her mind spinning to comprehend what this vivacious, intelligent woman was telling her; an utter stranger, yet a new sister of sorts.

“Madame, I see that you wear the same belt that you wore the last time. It is a Versace with their logo, the head of the Medusa.” (Like all classical myths, the Medusa has several aspects: Medusa had the power to turn to stone all those who looked into her eyes, but also had the power to evoke love, which Versace had capitalized on to elicit love for their designs, thus the Medusa embraces both love and death. On the surface contrary aspects, but on a deeper level united with both aspects playing out in the sinking of the French ship, Medusa.)

“This is all so strange; I am not sure what all these connections mean for us, but they are real; as real as the deaths of our husbands, as real as our grief for them, and as real as the solace we can extract from this painting.

Madame, I must now go to another gallery. I hope we might meet again, but, if not, I leave you with my sincere wish for peace and joy in the new life you must create for yourself…for ourselves.” She left as tears began to fall, as tears fell in both their eyes.

What is handed down in families is a mixture of wealth and suffering. The proportions vary according to family circumstances. What the survivors make of this wealth and suffering is the beginning of a new generation, a new series of connections that either unite or oppose, much like love and death.

Conclusion

Wealthy families frequently hold second passports, and have homes in foreign countries. Over time, family events like death, separation, and remarriage complicate estate plans. All of these factors can dissipate family assets.

Life insurance is recognized in almost every country worldwide as a safe, straightforward, and simple wealth transfer vehicle. The use of PPLI only adds to the benefits, since in a properly structured PPLI policy almost any asset can be held.

A PPLI policy passes assets directly to intended beneficiaries and keeps family wealth intact, giving families the maximum amount of privacy, asset protection, and tax efficiency.

If an EWP Structure had been used…

  • In the process of creating an EWP Structure, Andre Simmons’s estate plan would have been thoroughly discussed, and a will would have been part of this process. The orderly deposition of his assets would have been formulated in detail. All bequests would have been spelled out, leaving no doubt as to how his estate would be divided.
  • An EWP Structure would address all possible issues involving succession. A trust would have been established outside of either the U.S., France, and New Zealand making the forced heirship laws of these countries mute on this point.
  • The press would have few details to speculate about involving Andre’s assets, because in an EWP Structure the insurance company becomes the beneficial owner, and these assets are not a part of a public record, such as registers of beneficial ownership.
  • The issue brought by Andre’s first wife would have been discussed in connection to the EWP Structure, so could not have been raised in any attempt to garner assets from the estate through nullifying his second marriage.
  • All Andre’s assets would be included in the EWP Structure, and provisions would have been made for all his companies continued operation or sale in the event of his death.
  • The U.S., France, and New Zealand would not be able to compete to take tax dollars from the estate, because they would have been in an EWP Structure that would place them outside the reach of all three countries.

 

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

Michael Malloy-CLU-TEP

International Tax Planning & Succession Planning

Expanded Worldwide Planning, (EWP) & Succession Planning-Part 1

Private Placement Life Insurance (PPLI) in Action

PPLI Benefits International Family Wealth Transfer–Part 1

Background

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. A PPLI policy purchased outside the home country of the owner or policyholder is a method to mitigate these forced heirship rules.

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. 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.”

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

Michael Malloy-CLU-TEP

 

 

 

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Q & A – Fence = Privacy…Well Sort of

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 RFC

 

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Fence = Privacy…Well Sort of

Let PPLI Be Your First Defense

Section 2, Part 1

When it comes to the six principles of Expanded Worldwide Planning (EWP), few asset structuring tools work as well as PPLI for wealthy families throughout the world. Professor PPLI, how did this come to be?

You might describe this occurrence as a happy accident. The six principles of EWP came into their own after FATCA and CRS. With these two important changes in the planning landscape, wealthy families wished a more conservative and stable method in which to organize their financial holdings. Why not use a financial tool that has been around in different forms since 100 B.C.? This is, of course, life insurance.

PPLI delivers to  wealthy families all six principles of EWP: privacy, asset protection, tax shield, succession planning, compliance simplifier, and trust substitute. All these outstanding benefits in one low-cost and simple structure.

Professor PPLI, please tell us how the U.S. tax system can benefit wealthy clients throughout the world?

The tax system in the U.S. gives the individual states much independence in structuring their tax laws. In some ways, it can be compared to the cantons in Switzerland that were able to structure their laws to attract corporations from around the world to locate headquarters there. In the U.S. several states compete by designing favorable trust and tax laws that encourage wealthy families from around the world to move their financial assets to these states.

These states are most notable: South Dakota, Nevada, Delaware, Wyoming, and recently New Hampshire. In general the U.S. gives families stability with a strong rule of law that protects personal property. Also, since the U.S. is not a party to CRS there is limited reporting. With the favorable laws in these states coupled with a PPLI policy, the family has an excellent home for its worldwide holdings.

At Advanced Financial Solutions almost all our PPLI policies involve some sort of cross border situation. Professor PPLI, please tell us how these cross border planning situations are best approached.

Throughout the world governments pass new tax laws daily and its citizens and those who come under its jurisdiction must comply with these laws, or face certain penalties. Also, tax laws change frequently and how you must comply does not always translate into a simple answer or number on your tax return.

This is why at Advanced Financial Solutions Inc., we thoroughly research our PPLI structures, and make sure they comply with all the tax authorities involved in the locations of a client’s assets. Because a properly structured PPLI policy can hold almost any asset, this thorough research must be specific to the laws pertaining to this asset class.

For instance, some clients might wish to invest in an Australian security, or others have a private jet registered in a specific jurisdiction. We undertake this research at the beginning of the policy design to insure that it is fully compliant. Even operating businesses can be placed inside a PPLI policy with the proper structuring. This is all part of our unique method of asset structuring for wealthy families throughout the world.

 

by Michael Malloy, CLU TEP RFC, @ 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 RFC

Inside and Outside PPLI

Academics Teach Us a Lesson

Section 1, Part 4

 

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See original article

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 RFC, @ 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 RFC, @ Advanced Financial Solutions, Inc

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Positive and Beneficial Influence

PPLI Achieves Both

A Private Placement Life Insurance (PPLI) structure exerts a positive and beneficial interest on the assets which it holds. Let us examine how this is accomplished, and also what it means to exert influence. Babies and small children learn very soon how to exert influence on their parents.

I was having dinner with a five year old and his parents recently, and when the five year old ceased to be the center of the conversation, he would emphatically say, “I have something very important to tell you.” Of course, our conversation would cease and the five year old was very pleased!

PPLI achieves this benign influence over assets by employing the six key elements of Expanded Worldwide Planning (EWP). I would say that this influence is much greater than benign–it is transformative. Let us briefly state the importance of these six elements in creating a transformative PPLI policy structure.

Privacy  This is a key element. With FATCA, CRS, and Registers of Beneficial Ownership our clients are looking for ways to keep their affairs private, and still be compliant with tax authorities worldwide. But as you know, it takes study and constant attention to detail to create a proper structure.

Tax Shield  In high tax jurisdictions, a tax shield is important. Why pay more tax than is necessary? If there is a PPLI structure than can give you a tax-free environment wouldn’t it be desired by our clients?

Asset Protection  Asset protection is an element that almost all clients seek. Making their assets inaccessible to former spouses, creditors, and those seeking to claim them without legal authority. An excellently crafted PPLI structure can also accomplish this for them.

Succession Planning  Especially in jurisdictions that have forced heirship rules, succession planning is vital to clients. Most clients wish to distribute their assets according to their wishes and not according to a plan that they don’t agree with.

Compliance Simplifier  In today’s world attempting to hide assets only draws more attention to them. Most clients wish to be compliant with the world’s tax authorities, and at the same time keep as much privacy as possible. Finding our way in this maze of regulations is an important element.

Trust Substitute  In some jurisdictions, in particular, those that use civil law as opposed to common law, a trust substitute would be useful. Why create an entity that in the end will just be ignored by tax and legal authorities? Why not have a PPLI structure that works both in civil and common law jurisdictions?

In the realm of politics, lobbying government officials is a method of attempting to exert influence. There is an outcry of concern when this influence is considered undue influence, and this is defined differently throughout the world. What is lobbying in one country might be considered bribery in another country.

This article by Julie Bykowicz caught our eye this week in one of our favorite publications, The Wall Street Journal,

“The New Lobbying: Qatar Targeted 250 Trump ‘Influencers’ to Change U.S. Policy. Blockaded by Mideast neighbors, the emirate employed an unconventional lobbying campaign to win over an unconventional U.S. president.”

 

“Longtime New York restaurateur Joey Allaham visited Manhattan’s Park East Synagogue late last year with an offer for lawyer Alan Dershowitz. Come visit Doha, the capital of Qatar, by invitation of the emir.

Mr. Dershowitz says he hadn’t met Mr. Allaham before and initially demurred before agreeing to go. The professor also didn’t know he was on a list of 250 people Mr. Allaham says he and his lobbying-business partner, Nick Muzin, identified as influential in President Trump’s orbit.

The list was part of a new type of lobbying campaign Qatar adopted after Mr. Trump sided with its Persian Gulf neighbors who had imposed a blockade on the tiny nation. Qatar wanted to restore good relations with the U.S., Mr. Allaham says. Win over Mr. Trump’s influencers, the thinking went, and the president would follow.”

We look forward to lobbying on your behalf to create a PPLI structure that employs all six of the key elements of EWP.

Please let us know how we can serve you to this end. Place your comments at the end of this post and sign up to get updates.

 

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

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Overcoming Obstacles Gracefully

Let PPLI Show the Way

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

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

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

Further explanation is given in the Principles section:

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

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

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

The Six Principles of EWP

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

Privacy

Asset Protection

Succession Planning

Tax Shield

Compliance Simplifier

Trust Substitute 

The Life of Helen Keller

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

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

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

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

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No Separation of Child/Parent

PPLI: United We Stand for Tax Savings

Private Placement Life Insurance, (see PPLI in our blog) makes use of one of the simplest and oldest tax shields that exist–life insurance. Donald Trump’s very unpopular immigration policy of separating children from parents who cross the border with Mexico  reminds us of another separation that has undesired consequences for tax savings.

This separation is summarized in the catchy yet deceptive phrase, “Buy term life insurance and invest the difference.”  By taking this advice one is, to use another common phrase, “Throwing out the baby with the bath water.” We will show you by example that if you keep your investments inside a PPLI policy, you can benefit handsomely.

Before we give you an example of tax structuring using PPLI, let us return to government regulations. We used a very controversial example with Donald Trump and Mexican children, but how does our firm interact with governments worldwide on a regular basis in relation to tax structuring for wealthy international families.

The process works like this:

“The laws, tax codes, and regulations that we study to assist our clients are complex. We study these laws, tax codes, and regulations with an eye to selecting the elements that can best serve our clients.  If the tax authorities of governments think we have gone too far with our use of these laws, tax codes, and regulations, they amend them, and so the process continues.”

Clients are now looking at simple and straightforward solutions to their complex problems. Since a properly structured PPLI policy is at the heart of our planning, and insurance regulations in most countries are more long- lasting and simpler than the tax codes, we have a significant advantage in helping our clients.

PPLI solves or mitigates issues for clients involving:

  • Tax deferral
  • Income tax planning
  • Succession planning
  • Asset protection
  • Compliance
  • Privacy protection
  • Estate planning

PPLI Tax Deferral

Here is an example that involves the PPLI benefit of tax deferral.  In the right circumstances, business income can also benefit from tax deferral.  Since we are using a life insurance policy, all the assets inside the policy will pass tax-free to the beneficiaries named in the PPLI policy.

Eduardo Flores is an investor located in a high tax state in the U.S. with a combined tax rate of 53%. Eduardo is a successful businessman with $50 million of investable assets. Eduardo has been receiving a 8% return on these hedge fund investments, but realizes more than half of his profits will benefit federal and state government. See Figure 1 below.

PPLI generates $4.9 million more than a taxable hedge fund investment after 10 years. After 20 years, PPLI has outperformed by over $18 million. Held for 40 years, the PPLI policy will produce $120 million more than a taxable account.

If you buy term life insurance, and invest the difference, your investments miss out on the substantial benefit of tax deferral. Why separate yourself from this outstanding benefit. Most of us would not wish to step into Donald Trump’s shoes and be subject to worldwide criticism for an unpopular decision. Make the right decision, and investigate how PPLI can best serve many of your structuring and tax planning needs.

We are here to serve you towards this end, and very much wish to hear what you have to say about our firm and ideas. You can place any comments at the bottom of the page, and if you have interacted with us in the past, we would appreciate any testimonials in our blog or Yelp. Thanks in advance.

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

 

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How PPLI Negotiates for You

World Leaders Teach EWP

Negotiating is at the heart of Expanded Worldwide Planning (EWP), and Private Placement Life Insurance (PPLI).  What can we learn from the much publicized negotiation between Donald Trump and Kim Jong Un? One thing is obvious about this meeting.  We don’t really know much. The most substantive talks were held in private between the two leaders. As the saying goes, “After all is said and done, more is said than done.”

So what we read in the press about this negotiation is mostly speculation and conjecture, and another part is supplied by our own attitudes towards these world leaders and their countries. This is precisely what is avoided in EWP.  By using a properly structured PPLI policy, we are able to build a plan on a strong foundation of knowledge.

A good part of this solid foundation is insurance regulations. These regulations tend to be simpler and more straightforward than the tax codes of the world’s countries, and supply many key benefits that are not allowed under tax codes.

One definition of negotiating from the Wiktionary is “To succeed in coping with, or getting over something.” This is why we can say PPLI NEGOTIATES FOR YOU. It allows you to succeed using the key elements of EWP: privacy, asset protection, succession planning, tax shield, compliance simplifier, and trust substitute.

How this ability to succeed in planning for wealth international families plays out in detail depends on the particulars involved: where the family reside; the tax codes of the countries where the various family members reside; the nationalities of these family members; the assets involved; and most importantly, the tax and estate planning aims of the family.  All these elements are part of a successful EWP engagement, and what our firm enjoys most–giving families the most cost efficient and comprehensive plan possible.

History of PPLI

In the various press stories on the Trump and Kim Jong Un negotiation are historical perspectives going back to Kim’s father and grandfather. This made us realize that we have never given you a history of PPLI. Here is a short one courtesy of Trusts & Estates by Grant R. Markuson.

“PPLI really began as a way of customizing specific types of insurance products as part of corporate benefit planning for senior executives. Although the rank and file employees may have been happy with the benefits of more typical insurance offerings, senior executives often desired greater investment options, lower fees, and greater overall customization. This, in conjunction with the growing use of variable contracts, led to the birth of individualized PPLI products. The Internal Revenue Service (Service) initially ruled on these types of customized variable products in a series of Revenue Rulings from 1977-1982.

 

In the early 1990s, PPLI products for wealthy individuals surfaced again out of the Channel Islands. Soon after that, Cayman Island and Bermuda based products started to surface. As the hedge fund industry started to pick up steam during this period, many of the products were being specifically developed for these investments. In the mid 1990s, many of the major U.S. and European carriers entered the international PPLI market, which brought this type of planning back into the mainstream.”

To bring our brief history up to the present, we find a robust appetite for PPLI and EWP at present with the fast paced growth of wealthy international families throughout the world. Using PPLI and EWP at the service of these families can achieve bespoke solutions not possible with other methods of international tax planning.

We welcome the opportunity to negotiate on your behalf and reach a successful result for all concerned. Thank you for your continued trust and support. Please give us your thoughts.

 

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

 

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