Transfer Wealth and Avoid Taxation With a PPLI

People with considerable assets have often searched for ways to pass on their wealth to heirs without triggering an unreasonable tax burden. Lawsuits have long been another concern, and certain insurance funds provide shelter from litigation. Now, with new tax laws that limit certain taxpayer deductions, insurance-dedicated funds have enjoyed a surge in popularity. Especially among those seeking to pass on wealth while avoiding numerous types of taxes and legal complications.

Private placement life insurance, or PPLI, represents one financial product that has attracted attention and billions of dollars’ worth of investment in recent years. In addition to the aforementioned protections to the investment, a rocky stock market and low Treasury yields are prompting investors to look for new options.

Diversified portfolios, including stocks and bonds, hedge funds, securitized mortgage funds, and middle-market lending, have long been key. However, these assets can end up taxed as normal income at rates of up to 50 percent, depending upon the state of residence. But when placed inside a PPLI, these investments aren’t subject to taxation.

As with any financial maneuver, PPLIs carry certain pros and cons. Investors enjoy benefits such as:

  • Relatively higher returns on investment
  • Comparatively low management fees
  • Deferral of all investment gains
  • Payout of death benefits that is tax-free
  • Clear, transparent pricing structure
  • Access to cash via loans against the policy’s value
  • No surrender charges
  • Flexible structure that meets liquidity needs

Of course, all contractual matters come with some restrictions, and PPLIs are no exception. This might make this type of policy wrong for certain investors. For example, the minimum investment is $2 million, a figure not attainable for many. Policy managers must follow strict rules to avoid IRS scrutiny, which means investors must surrender control of their assets to a manager. This can be difficult for those who prefer to be more hands-on with their investments.

For more information on PPLIs, along with other methods of preserving and transferring wealth to the next generation, please feel free to contact our office or connect with Heath Goldman at ICON Wealth, A PPLI might be the solution for your situation, but investigate your options carefully to identify those which suit you best.

Picture of Michael Kimball, Esq.

Michael Kimball, Esq.

Mike Kimball offers practical, timely, and economical legal solutions that move projects along and allow you to focus more on your core business objectives. He has years of experience partnering with companies ranging from Silicon Valley startups to firms in aerospace, biotech, construction, and many more. Mike’s in-house experience includes Yahoo!, Krux Digital (acquired by Salesforce), and Commerce One. He has worked on transactions with Eurostar, Red Bull, Major League Baseball, NASDAQ, Goldman Sachs, Liveramp, Amazon, and NASCAR.