I am happy to be back from my writing hiatus. In retrospect I am not really certain what the reason was for the hiatus. Writer's block? Not really. There are actually plenty of things to write and talk about! I have always been a writer. I published my first article in Trust and Estate magazine back in 1994 where I published an article on offshore Rabbi Trusts.
Over the course of time, I expanded on variations on a theme. Apparently, people read the articles and implemented the strategy to the point that the Joint Committee of Taxation referenced the article in their report and implemented a provision in IRC Sec 409A limiting the ability to use offshore trusts. I never knew! So, the point of this series of articles is to let the reader that not only do I promote good planning ideas but can implement them for the taxpayer. And of course, nobody goes to jail!
One of the first things that I learned from my first sales manager with Cigna in 1987, was that you have to ask for the business. I have historically provided a realm of planning ideas while showing how to connect the “dots” without directly the client or client’s advisor for the business. This series of articles serves as a reminder that I also implement the strategies that I write about in case there was some confusion on the point.
PPLI and PPVA – Why Me?
My path in life insurance and the law is the “Road less traveled.” Out of the Army, I worked in the life insurance industry while attending law school at night at the University of Miami. I have worked as an assistant agency manager and as a producer. During the course of time, I obtained the Chartered Life Underwriter (CLU), Certified Financial Planner (CFP) and Chartered Financial Consultant (ChFC) professional designations.
In 1996 I met a couple who were early pioneers in private placement life insurance. This was my first exposure. I did freelance work for them related to private placement life insurance (PPLI). In 1999 I had an opportunity to work on a fulltime basis in the private placement life insurance industry with MassMutual. I later worked for Marsh in the international side of PPLI focusing on the non-U.S. planning use of these products. I had a tour of duty with Lombard (aka Philadelphia Financial Group) where I focused on private placement group variable deferred annuity contracts for institutional investors and fund managers.
My work at this time cleared the path allowing this market segment to become the company’s biggest business. I later went in business for myself and a consultant and producer in the PPLI industry. When I started practicing law fulltime (circa 2013-20140) I focused on the legal implementation of PPLI strategies from both a tax and life insurance product standpoint.
In the final analysis, there are few producers or attorneys (if any!) in the PPLI industry that have covered all of the various dimensions of PPLI and PPVA. Prospective high net worth taxpayers will benefit from that experience in a way that someone who has only practiced law cannot provide. Just saying!
PPLI and PPVA - Why Now?
In case you haven't received the memorandum, taxes of all sorts, income and estate are going up at the federal and state level. Everyone would say that increased taxation is a virtual certainty. Just ask the current administration. I don't make the rules, but rather how to return the serve with sophisticated planning strategies. Your neighbor the insurance agent was right, life insurance is the most advantageous investment structure on the Planet - 1) Tax-free inside build up; 2) Tax-free investment income; 3) Tax-free withdrawals during lifetime through loans and withdrawals; 4) Income tax-free death benefit; 5) Estate tax-free death benefit when owned within an irrevocable trust. What does private placement life insurance (PPLI) or private placement variable deferred annuities (PPVA) add to the equation?
PPLI is a customized no-load variable universal life insurance policy that allows the policyholder to customize the investment options within the policy. Imagine customizing the investment platform so that you can transfer low basis capital assets that can accumulate without taxable gain within the policy?
· Imagine investing in asset classes ordinarily generating taxable income outside of the policy but are not taxable within the policy.
· Imagine transferring an investment portfolio on an installment sale basis without gain and the inclusion of the promissory note in the taxpayer's estate.
· PPVAs can provide for tax deferral as well serve as a vehicle to avoid unrelated business taxable income (UBTI) in pension plans and IRAs.
· PPVAs or PPLI can also be used by foreign investors to avoid taxation on business and real estate withholding taxes on inbound investments into the U.S. Who would have known?
· Imagine using a customized Pooled Income Fund (PIF) to contributed an asset with a partial tax deduction, a sale of the asset without capital gains taxes and tax-free lifetime income with the proceeds.
Summary
I have written over three hundred articles, podcasts, and videos on various planning topics in part because I am a student of the game and enjoy it and in part for business development purposes. Sometimes readers pick up the phone and call, and other times people read and implement the idea. I have worked in and around the life insurance industry for almost thirty-five years. Unlike the typical attorney who knows the law, I have worked for life insurers and as a broker.
I know the senior management in the offshore and domestic PPLI carriers, and they know me. I have implemented many policies as a broker and recommended strategies that resulted in many policies being written. In recent years, I have performed the legal structuring involved in the placement of PPLI and PPVA. If you have not considered PPLI or PPVA, please call me so we may discuss the advantages of such strategies or let me know the ins and outs of a better strategy. The wiser course of action is to take a chance on me while you analyze the tax and planning benefits of PPLI.