PPLI2 + Tax Treaty2 = EWP2
International tax planning must combine items from various disciplines to achieve a successful result. We will take liberties with the Pythagorean Theorem to make our point. Tax codes do not have the exactitude of mathematical formulas, but international families must frequently combine several elements to achieve the desired results. The elements we will discuss are Private Placement Life Insurance (PPLI), Expanded Worldwide Planning (EWP), and international tax treaties. We will have a short refresher on the Pythagorean Theorem later on, but no quiz!
In the Pythagorean Theorem once two sides are known, you can solve for the third side using the Theorem.
We wish to solve for EWP, so let us explore how tax treaties allow us to achieve a successful result in solving our equation. At the heart of EWP is a properly structured PPLI policy. The assets inside this policy can be anything that can held by a trust company. These assets can also be located anywhere in the world. While these assets are inside this PPLI policy, all tax is deferred. At the death of the insured life/lives under the policy, these assets pass tax-free to the beneficiaries of the PPLI policy.
According to the Wikipedia Tax treaty page, “The stated goals for entering into a treaty often include reduction of double taxation, eliminating tax evasion, and encouraging cross-border trade efficiency. It is generally accepted that tax treaties improve certainty for taxpayers and tax authorities in their international dealings.”
At Advanced Financial Solutions, Inc., we research jurisdictions that give wealthy international families the most benefits. Let us site an example of a Chinese family, who invests in U.S. real estate through a real estate investment advisor. Depending on their estate planning needs, the investment advisor can create a new fund as a PPLI or a Private Placement Variable Annuity (PPVA). The policy will be owned by a foreign trust established by the family.
All of the real estate income and gains within the annuity contract will not be subject to taxation or withholding taxes under Article 17 of the U.S. –People’s Republic of China Income Tax Treaty.
Using EWP and PPLI we have provided this Chinese family, tax compliance, tax efficiency, simplified reporting, and enhanced privacy.
I know those of you who enjoy math have been waiting for the return of the Pythagorean Theorem. Here it is in its most simple form courtesy of Margaret Patterson of Dr. Math:
So if you are told that you have a right triangle whose sides are 3 and 4,
| \ Then you can use this theorem to find out what the
3 | \ c third side is.
| \ 3*3 + 4*4 = 9 + 16 = 25 = 5*5, so c=5
Our firm enjoys solving your problems, so please give us one that can be solved using EWP and PPLI.
We appreciate your continued trust and support.
by Michael Malloy CLU TEP RFC, @ Advanced Financial Solutions, Inc