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

 

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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, @ Advanced Financial Solutions, Inc

Michael Malloy-CLU-TEP

 

 

 

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Q & A- Transformation Abounds

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

~ by Michael Malloy, CLU, TEP

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Transformation Abounds 

Professor PPLI and the Caterpillar

Section 1, Part 5

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

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

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

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

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

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

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

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

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

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

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

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Q & A – Inside and Outside PPLI

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

~ by Michael Malloy, CLU, TEP

Inside and Outside PPLI

Academics Teach Us a Lesson

Section 1, Part 4

 

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

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

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

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

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

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

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

Trust and Insurance Comparison 

Insurance

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

Trust

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

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

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

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

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

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#michaelmalloy #PPLI #privateplacement #lifeinsurance #advancedfinancialsolutions