Law Office of Thomas J. Swenson
U.S. and International Wealth Building and Wealth Preservation
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LuzernPrivate placement life insurance (PPLI) is a versatile and highly efficient investment vehicle, but sadly underutilized. It is useful not only for wealthy families. An individual or family having a net worth of only $2 million to $5 million is financially able to fund a PPLI policy.

As with all life insurance policies under the U.S. tax code (IRC § 7702), no income or capital gains taxes are paid on investment growth of assets held in a private placement life insurance (PPLI) policy. Accordingly, assets in the life insurance wrapper can grow and be distributed to beneficiaries completely free of income tax. Generally, estate taxes must be paid upon death of the insured if PPLI is in the estate of the insured. Estate taxes can be avoided, however, if the PPLI policy is owned by an irrevocable trust (see ILIT info on this website).

Foreign-based PPLI has advantages over domestic PPLI. It has lower minimum premium commitments (min. premium commitment usu. $1 million), and has lower start-up fees and carrying costs. In contrast to foreign PPLI, domestic PPLI requires a minimum premium commitment of $5 million or more, only in cash, has higher fees, and is subject to state-imposed investment restrictions. Of course, as a variable product, PPLI is exposed to the market risks of its investments. Nevertheless, risk can be managed effectively by investment of policy assets in conservative and/or diversified funds.

It is well known that domestic whole and universal life insurance policies provide tax-deferred growth of the policy’s cash or investment value. The cash value of a conventional policy (i.e., not variable and not privately placed), however, is part of the general investment fund of an insurance company. Growth of cash value within a whole life insurance policy is generally relatively low, usually a few percent annually. Growth in a fixed index universal life (IUL) insurance policy is typically greater, but with fewer guarantees. Also, non-variable policies are only as secure as the insurance company. Policy funds are generally commingled with the insurer’s general fund. In the United States, insurance carriers are, however, closely regulated by state insurance commissions. As a practical matter, therefore, non-payment of policy values due to insurer insolvency does not occur. Further, U.S. states generally insure premiums to a limited extent.

Private placement life insurance (PPLI), in contrast, is a privately negotiated life insurance contract between insurance carrier and policy owner. PPLI offers several advantages compared to standard policies. Policy funds are held in segregated accounts that theoretically protect the funds against the carrier’s creditors. PPLI enables a wider range of investment opportunities managed by a professional investment adviser selected by the policy owner. Finally, policy costs are transparent, negotiable and typically lower than off-the-shelf insurance products. A problem with domestic insurance companies offering PPLI in the U.S., however, is that they typically require a minimum insurance premium commitment of $10 million to $50 million.

Offshore PPLI policies are more favorable than domestic PPLI based in United States. Offshore insurance companies are not subject to strict SEC and state insurance regulations in the U.S., which limit the types of investments available to domestic insurance policies. Further, offshore PPLI policies are not subject to the state premium taxes charged by the various states. Although a policy issued by a foreign insurance carrier is subject to a 1% U.S. excise tax, this is balanced by not being subject to the federal deferred acquisition cost (DAC) tax. One of the major benefits of offshore PPLI is that it is offshore, meaning that the offshore life insurance carrier can be selected so that it is not subject to the jurisdiction of U.S. courts. Offshore PPLI typically has a minimum premium commitment of $1 million total over five to seven years, and fees associated with offshore PPLI are typically about 1.5% to 2% of premium load.

An alternative to PPLI is a foreign deferred variable annuity (DVA).

For more detailed information about US tax-law compliant PPLI, please consult the articles listed on this website page, or contact this office for a free consultation.

Please see additional information below, or download here.

Irrevocable Life Insurance Dynasty Trust – Basics

Asset protection and Tax-Free Investments

Irrevocable Life Insurance Dynasty Trust– Basics

Summary: An irrevocable life insurance trust (ILIT) comprises two main parts: (1) an irrevocable asset protection trust; and (2) a life insurance policy owned by the trust. An international ILIT is better than a domestic ILIT because it is more flexible and less expensive. Private placement life insurance (PPLI) serves as a “wrapper” around a global, variable investment portfolio that grows free of income and capital gains taxes. At the trustee’s discretion, the trust may access policy cash value by withdrawals and tax-free loans during the life of the insured. The trust settler (grantor) may also be a beneficiary. Upon death of the insured, PPLI proceeds are paid into the ILIT free of income and estate taxes.

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Asset Protection and Tax-Free Investments for the Moderately Wealthy

Summary: An offshore tax-free asset-protection life-insurance dynasty trust is useful not only for the wealthy. In full compliance with U.S. tax laws, an individual or a couple having a net worth of about $1 million to $5 million can fund an offshore asset-protection life-insurance dynasty trust that provides a life insurance benefit, tax-free growth of a variable high-yield investment portfolio, tax-free policy loans during the life of the insured, tax-free payment of policy proceeds to the trust upon death of the insured and tax-free distributions to beneficiaries.

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