Embrace the magic of private placement life insurance (PPLI) and private placement variable annuities (PPVA)
I’m happy to be back from my writing break. In retrospect, I’m not really sure why the interruption was. Author’s block? Not really. There is indeed plenty to write and tell! I have always been a writer. I published my first article in Trust and Estate magazine in 1994, where I published an article on offshore Rabbi Trusts.
Over time, I have developed variations on a theme. Apparently people read the articles and implemented the strategy to the point that the Joint Committee of Taxation referred to the article in their report and implemented a provision in IRC Sec 409A limiting the possibility of use offshore trusts. I never knew! So, the purpose of this series of articles is to make the reader understand that not only do I promote good planning ideas, but that I can implement them for the taxpayer. And of course, no one goes to jail!
One of the first things I learned from my first sales manager at Cigna in 1987 was to ask for the deal. I have historically provided an area for planning ideas while showing how to connect the “dots” without directly the client or the client’s advisor for the business. This series of articles reminds me that I also implement the strategies I write in case there is any confusion about the point.
PPLI and PPVA – Why me?
My path in life insurance and the law is the “road less traveled”. Outside of the military, I worked in the life insurance industry while attending law school in the evenings at the University of Miami. I worked as an assistant agency manager and as a producer. Over time, I obtained the professional designations of Chartered Life Underwriter (CLU), Certified Financial Planner (CFP) and Chartered Financial Consultant (ChFC).
In 1996, I met a couple who were one of the early pioneers of private placement life insurance. It was my first exhibition. I did independent work for them related to private placement life insurance (PPLI). In 1999, I had the opportunity to work full time in the private placement life insurance industry with MassMutual. I then worked for Marsh in the international portion of PPLI focusing on using these products for planning outside the US. I completed a period of service at Lombard (aka Philadelphia Financial Group) where I focused on private placement group variable deferred annuity contracts for institutional investors and fund managers.
My work during this time paved the way for this market segment to become the company’s biggest business. Later I went into business for myself and as a consultant and producer in the PPLI industry. When I started practicing law full time (circa 2013-20140), I focused on the legal implementation of PPLI strategies both from a tax perspective and from a life insurance product perspective.
In the final analysis, there are few growers or avocados (if any!) In the PPLI industry who have covered all the different dimensions of PPLI and PPVA. Potential high net worth taxpayers will benefit from this experience in a way that a person who has practiced only law cannot offer them. I’m just saying!
PPLI and PPVA – Why now?
In case you have not received the memorandum, taxes of all kinds, income and estates increase at the federal and state level. Everyone would say that raising taxes is a virtual certainty.
Just ask the current administration. I don’t make the rules, but rather how to return the service with sophisticated planning strategies. Your neighbor the insurance agent was right, life insurance is the most beneficial investment structure on the planet – 1) tax-free domestic accumulation; 2) Tax-free investment income; 3) Lifetime tax-exempt withdrawals via loans and withdrawals; 4) Tax-free death benefit; 5) Non-taxable death benefit when held in an irrevocable trust. What does Private Placement Life Insurance (PPLI) or Variable Private Placement Deferred Annuities (PPVA) add to the equation?
PPLI is a personalized no-fee 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 base capital that can accumulate without taxable gain under the policy?
- Imagine investing in asset classes that normally generate taxable income outside of the contract, but which are not taxable under the contract.
- Imagine transferring an investment portfolio on a no-gain installment sale basis and including the promissory note in the taxpayer’s estate.
- PPVAs can provide for tax deferral and serve as a vehicle to avoid taxable unrelated business income (UBTI) in pension plans and IRAs.
- PPVAs or PPLIs can also be used by foreign investors to avoid the imposition of withholding taxes on businesses and real estate on inbound investments into the United States. Who would have known?
- Imagine using a custom mutual income fund (FRP) to bring in an asset with partial tax deduction, sale of the asset without capital gains tax, and tax-free life income with the product.
I’ve written over three hundred articles, podcasts, and videos on a variety of planning topics, partly because I’m a student of the game and enjoy it, and partly 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 lawyer who knows the law, I have worked for life insurers and as a broker.
I know the senior management of offshore and domestic PPLI carriers, and they know me. I have implemented many policies as a broker and recommended strategies which resulted in many policies being written. In recent years, I have carried out the legal structuring related to the placement of PPLI and PPVA. If you haven’t considered PPLI or PPVA, please give me a call so we can discuss the benefits of such strategies or let me know the ins and outs of a better strategy. The wisest course of action is to take a chance while you analyze the tax benefits and planning of PPLI.