INTEGRATED WEALTH MANAGEMENT SOLUTION WITH AN INSURANCE COMPANY-BASED SOLUTION
offices, trusts, estate attorneys and wealth management firms are
increasingly implementing Private Placement Life Insurance for their
PPLI structure recharacterizes investments as part of an insurance
policy and therefore the investments are subject to the more desirable
tax treatment of life insurance –
income tax-free growth, the ability to obtain income tax-free loans
and, if held until death, the ability to pass the investments along to
heirs along with additional policy death proceeds income tax-free.
is especially appealing for advisors to high net worth individuals and
families who often have significant allocations in highly-taxed
investments such as hedge funds, private equity and other alternative
assets. PPLI can be even more attractive if, on top of tax optimization,
there is also a need for life insurance for traditional estate and
By adding an insurance company to the equation, a PPLI-based wealth
management strategy includes features not found in a regular bank
account. Americans are able to establish a legal and US tax-compliant
PPLI policy, the value of which is based on the policy's underlying
investment portfolio, which can be managed by a Swiss SEC-registered
asset manager designated to do so.
Some of the PPLI's features are:
No investment restrictions
Tax-deferral on growth (until withdrawals are made)
No onerous PFIC (passive foreign investment company) taxes
Asset protection against creditors and in case of bankruptcy
Estate planning without probate, beneficiaries cannot be contested
An alternative to costly and complex trust structures
In order for the PPLI policy to be US tax compliant it may not be self-directed. While the policyholder can choose a general investment strategy, an asset manager needs to be designated to make any and all specific investment transactions.
The PPLI's underlying investment portfolio must adhere to the IRS diversification rule:
No more than 55 percent of the value of the total assets of the account is represented by any one fund/investment; no more than 70 percent of the value of the total assets of the account is represented by any two funds/investments; no more than 80 percent of the value of the total assets of the account is represented by any three funds/investments; and no more than 90 percent of the value of the total assets of the account is represented by any four funds/investments.
Often insurance-dedicated funds or other portfolios are implemented which are not directly available to the general public.
PPLI incurs an establishment fee and an annual administration fee charged by the insurance company, an asset management fee charged by the designated asset manager and custodian bank fees.
Adding the element of life insurance to cover biometrical risks may result in even more tax efficiency and estate planning benefits .
IRA funds may be invested and a 1035 tax-free exchange from an existing US policy is possible.
US taxpayers are required to pay a one-time 1% Federal excise tax on the purchase of a foreign insurance policy with Form 720 Quarterly Federal Excise Tax Return (unless the foreign insurance carrier (e.g. in the Bahamas) has elected to be treated as a US taxpayer according to section 953(d) of the US Internal Revenue Code).
The policy needs to be reported to the IRS annually by filing electronically a Financial Crimes Enforcement Network (FinCEN) Form 114, Report of Foreign Bank and Financial Accounts (FBAR).
Form 8938, Statement of Specified Foreign Financial Assets, is required when completing a US Individual Income Tax Return and is attached to Form 1040. The Form 8938 filing requirement is in addition to the FBAR filing requirement.
For comparison, reporting requirements for a bank account (foreign financial account) can include not only the FinCEN Form 114 and Form 8938, but also Form 3520, Form 3520A, Form 5471, Form 8858, Form 8865, or all of them.
Several Swiss SEC-registered investment advisers implement PPLI with their US clients, giving them the option of assets managed within the PPLI structure. Please request further information with the form below.