Accumulate Family Wealth on an Income, Estate and GST Tax-Free Basis
Your neighbor, the life insurance agent has been telling you for some time that life insurance may be the only investment that you need. What if it were true? You remember some of the "buzz" words from his elevator speech - the cash value grows tax-free, and you can access the money during your lifetime tax-free and the growth is tax-free at death." All of the aforementioned is true!
Private Placement Life Insurance ("PPLI") is an institutionally priced variable universal life insurance that provided for the customization of policy investment options. The investment options are not generally constrained by a lack of liquidity or asset class. The investment options may include real estate, private equity and venture capital.
One of the traditional constraints of individual policyholders is the Internal Revenue Code definition of life insurance and the availability of reinsurance coverage on an insured life. These rules limit the amount of premium and time period for funding a life insurance policy so that it preserves all of the tax benefits afforded to life insurance.
The Fortune 500 corporations have funded non-qualified deferred compensation plans using corporate owned life insurance ("COLI") for a half century at least. COLI assets represent hundreds of billions of dollars of assets on the balance sheets of these large corporations to finance these programs for senior executives.
Benefitting from the favorable tax treatment of life insurance, the banking industry these policies provide for tax-free investment growth, tax-free distributions and tax-free death benefits. The investment level of National banks and savings and loan association investment in these products is $182 billion.
The tax benefit is so significant for banks and corporations that the only limitation is the number of insured lives available in the corporation or bank and legitimate level of future benefit costs justifying the level of investment. State insurance regulation has become more difficult in regard to "Consent to be Insured" regulation. These programs have become more politically sensitive in Congress.
Family Office Life Insurance ("FOLI")™ is a trademark program that allows an ultra-high net worth family to employ the same tactics of COLI and BOLI but without the constraint of the number of available insured lives and consent to be insured laws.
The program utilizes a group private placement life insurance policy. The policy is issued by a Bermuda-based life insurer that has made an election under IRC Sec 953(d) to be treated as U.S. taxpayer for its corporate tax purposes. The group policy is U.S. tax compliant. The policy is underwritten with "guaranteed issue" guidelines and reinsured by an investment grade reinsurer. There is no limit to the size of the premium or number of lives needed to ensure that the policy meets IRC Sec. 7702 guidelines.
Using FOLI, an ultra-high net worth family can accumulate family wealth on an income, estate and GST tax-free basis for at least two generations. Family funds will accumulate tax-free while providing tax-free distributions for trust beneficiaries. A FOLI program will provide for complete investment flexibility with an approximate policy cost of 100 basis points per year which is considerably much lower than the income tax rate for long term capital gains and ordinary income. Tax free compounding over 60-80 years is a powerful tool for any wealth family. Large corporations and banks are constrained by regulation and actuarial requirements regarding how much capital can be allocated to life insurance. FOLI is unencumbered by any of these regulations.
The future is now! The implementation of a FOLI will make the difference in tens of millions of accumulated investment dollars for family offices and wealthy families.