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Private Placement Life Insurance

 

Affluent investors care about what they keep, not what they earn. For over two decades, one of the best-kept secrets in tax planning has been private placement life insurance, which makes it possible for a hedge fund investor to garner tax-free returns. Private placement life insurance is a variable universal life insurance policy that provides cash value appreciation based on a segregated investment account combined with a life insurance benefit. Private placement life insurance is designed to maximize savings while minimizing the death benefit.

 

CASE STUDY:

 

An affluent client sets up a non-grantor's trust for the benefit of her children and funded it with a US$5 million gift. The trustee invested the gifted funds in hedge funds. Unfortunately, the trust would have to pay taxes at a rate of almost 50% on the annual earnings because of the increased tax rates that came into effect in the U.S. on January 1st 2013 with the passing of The American Taxpayer Relief Act. Paying the high tax rates on the trust’s earning each year will significantly hamper the growth of the assets for the children.

 

By investing the US$5 million private placement life insurance, the trustee can still invest in hedge funds, receive tax deferred growth on the underlying hedge fund earnings, and provide a US$20 million tax free death benefit for the children.

 

Circular 230 Disclosure: In compliance with requirements imposed by the IRS pursuant to IRS Circular 230, we inform you that any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used by anyone for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. The information contained in this document is not intended to and cannot be used by anyone to avoid IRS penalties. This material is intended for informational purposes only and should not be construed as legal or tax advice and is not intended to replace the advice of a qualified attorney, tax advisor or plan provider.

 

 

 


       
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