Q & A – Ancient Wisdom and 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

 

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Socrates and King Lear Teach Us a Lesson

Ancient Wisdom and PPLI

Section 3, Part 4

In this Part of the book, Socrates and Shakespeare’s King Lear are mentioned. Professor PPLI, please tell us more about how they pertain to PPLI?

In this Part of the book, we used the death of Socrates and the wanderings of King Lear late in his life as examples of highly charged types of exile. Socrates was put to death by state officials in Athens. King Lear was left to wander in his own country after political intrigue forced him out.

Wealthy families are not immune to dramatic forms of exile, sometimes being forced to flee their own country for political and economic reasons. At Advanced Financial Solutions, Inc., our goal is to structure your assets into a well-organized arrangement that gives you the stability to withstand disruptive cross border changes.

This is accomplished through the conservative vehicle of life insurance that is recognized in almost all jurisdictions throughout the world as a standard financial planning vehicle. Privacy, asset protection, and tax efficiency are the hallmarks of the structures that we provide for wealthy families throughout the world.

Profession PPLI, how does Socrates’s philosophy teach you to construct better PPLI international asset structures?

Achieving the ideal international asset structure requires us to be careful listeners. We zealously guard against presenting you with a preconceived plan of our own making. In the end, the plan must be a combination of your aims and desires and our knowledge of the laws and regulations that are pertinent to the plan. What worked for one family may not be a fit for you, even though the outward facts are similar.

How can we be certain that we adhere to careful listening? One method is to follow Socrates’s famous quote: “I only know that I know nothing.” Garth Kemerling’s insightful commentary in the Great Philosophers series is helpful here:

“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.”

Professor PPLI, why would a citizen of a country wish to purchase a life insurance policy from a company outside the borders of their country?

The majority of jurisdictions in the world allow their citizens to purchase life insurance from companies outside their borders. PPLI serves this need very well.

For reasons to purchase a foreign life insurance policy, you need look no further than the six principles of Expanded Worldwide Planning (EWP):

  • Privacy
  • Asset protection
  • Succession Planning
  • Tax Shield
  • Compliance simplifier
  • Trust substitute

Usually several, if not the majority of these six principles, are not available in your own country. Why restrict your international asset planning to just the meager offerings that are available. Expand your vision to include the full palette of EWP. We quote the definitions of the six principles from the Wikipedia page, “International Tax Planning:”

Privacy

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

Asset protection

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

Succession planning

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

Tax shield

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

Compliance simplifier

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

Trust substitute

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

Please let us know how we can put these six principles of EWP to work for you. Contact us for a no-charge initial consultation that will be tailored to your own individual aims and desires.

 

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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Location Will Get You Everywhere

PPLI Elevates Your Tax Efficiency

In using Private Placement Life Insurance (PPLI) for tax efficient structures for wealthy international families, the location of the various elements in the structure is of vital importance.  If any one of these elements is out of position, the whole PPLI structure suffers.

Since the French Open tennis tournament is now being played, we will include a handy description of being out of position below.  For an example from the tax world, a matter from the new U.S. Tax overall was brought to our attention with a video from  Fox News, (Fox Business).  This video highlights the importance of location for the government entity who is collecting the tax.  In this example, a company moves its headquarters, thus, a change in the U.S. taxing authority on the state level.

Merely listing the various location elements in PPLI structuring shows us that we are putting together a complicated puzzle.  But once the last piece of this puzzle is successfully put in place, a powerful result takes place for the client.  We include our list at the end of our blog.

Take this example from a recent PPLI case.  A U.S. Green card holder who spent little time in the U.S., generated her income in a E.U. country through a BVI company. She was not a tax resident of this E.U. country, but wished to shield her substantial income from U.S. taxes.

A foreign non-grantor trust purchased a PPLI. We placed her business inside a holding company structure that was inside the PPLI policy. Now, instead of paying U.S. income tax, and being subject to U.S. estate tax, she was able to take tax-free distributions from the PPLI policy. Many different types of locations were involved here!

We now go to the French Open, where one of the coaches of Rafael Nadal, Francisco Roig, describes one way Nadal maneuvers his opponent out of position, for our example, please read location:

“It’s tougher to play him physically because he’s moving you much more than before,” Roig said. “He’s opening the court unbelievable with the backhand. Before, the backhand—against a right-handed player—was more in the middle. But now you have to run three or four meters more, and open the width in the forehand area. You are soon out of position and then he kills you again with the forehand cross court.”

Our quote is courtesy of Tom Perrotta of the Wall Street Journal,

“A Scary Thought at the French Open: Rafael Nadal Is More Efficient Than Ever.”

This is also our goal for international tax planning–to be more efficient than ever.

Before pondering our lists of location elements, we give you the Fox News video, highlighting the change of physical location of a major company in the NYC investment world.

We must consider the location of all these elements when we craft our structures:

  • the trust that usually owns the policy;
  • the trustee of the trust;
  • the insured or insureds on the policy;
  • the domicile of the insurance company;
  • the assets;
  • the holding company structures, if any;
  • the beneficiaries.

I am sure there are more, but these are the main ones that come to mind.  Please give us your thoughts, and thank you for your continued trust and support.

 

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

 

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