Brian G. Fredkin and Jason P. Trenton of Venable LLP, have made available for download their article, “Private Placement Life Insurance as a Tool to Mitigate Taxes Despite Market Volatility and Global Uncertainty”, posted on the Venable LLP website. The abstract is as follows:
Despite recent volatility in the U.S. stock market, the rising costs of inflation, and the Russian invasion of Ukraine, there are still ways to control the taxes you pay on your investments and the taxes that your family will pay when you’re no longer here. One tool that has been used by wealthy families for several decades allows for the deferral of federal and state income taxes on investment portfolios. This tool, known as private placement life insurance (PPLI), is composed of your investment portfolio and an insurance component designed to deliver the minimum amount of insurance protection at the lowest cost, allowing the maximum tax benefit.
A PPLI policy may be structured to include stocks and bonds, hedge funds, and private equity funds. Section 7702 of the Internal Revenue Code allows the cash value of the PPLI policy to grow free of income tax. In addition, if the PPLI policy is owned by an irrevocable trust, the life insurance benefit tied to the portfolio can potentially escape the federal estate tax, which has a top rate of 40%.
Investment portfolios often consist of tax-inefficient investments. An example is an alternative investment such as private credit that pays a current yield. In places like California and New York, investors in high tax brackets would give up 50% of their return. By contrast, in a PPLI structure, the tax is deferred and potentially eliminated, allowing the money to grow and compound much quicker. In addition, some of these investments are not directly correlated to the stock market.
Click here to view the full article: “Private Placement Life Insurance as a Tool to Mitigate Taxes Despite Market Volatility and Global Uncertainty”
Posted by Marin Larkin, Associate Editor, Wealth Strategies Journal.