Private Placement Life Insurance (PPLI) in Offshore Trust More Useful Than Ever

FinanceWealth-Building

  • Author Thomas Swenson
  • Published July 26, 2023
  • Word count 1,082

Solution for Deteriorating Geopolitical, Economic, Tax and Financial Conditions

For decades, seers of doom have predicted the demise of the US dollar and other fiat currencies, economic recessions, crashing stock markets, a collapsing debt-burdened US Treasury, and the end of US global hegemony. Lately, these phantoms have started to take shape (despite mainstream media's attempts to convince you that what you see is not real).

As of July 2023, US national debt is approaching $33 trillion, while projected unfunded US debt liabilities total about $192 trillion (source: usdebtclock.org). In 2008, US national debt was "only" $10 trillion. Paying interest on the national debt is now the largest single US budget expenditure. Over 121 countries have begun de-dollarization efforts, incorporating gold as part of their alternative assets, impacting the global currency reserve landscape (source: Asian QuickTake, on YouTube, 25.July.2023). Global de-dollarization has spread from Russia, Iran, Venezuela and other oil countries to many countries around the world, including many developed countries, as well as economies in Southeast Asia and South Asia. (Source: "56 countries including Japan, Israel, etc. de-dollarize, US media: Japan is dumping US debt with lightning speed", iMedia, 26.July.2023, at min.news/en/economy/).

Current US income tax rates for individuals are historically low. Inflation is stubbornly high. The U.S. Federal Reserve Bank keeps raising its lending rates to lower inflation. In view of the high level of debt and leverage in the economy (compared to previous periods of inflation and high interest rates), and further in view of irrationally high price-to-earnings ratios in the equity markets, many market watchers predict a catastrophic downward correction of the markets and an economic recession. One can only guess whether tax rates on individuals (income, gift & estate) will go up in the future, or whether the US government will simply inflate/devalue the US currency to deal with national debt and declining tax revenues.

US global military, economic, financial, diplomatic and "cultural" hegemony was bound to decline over time (as all earlier empires have declined). The ill-considered, impetuous and idiotically self-destructive (as well as immoral) bullying and dishonesty of the US government, exemplified by (but certainly not limited to) its proxy war against resource-rich Russia and its taunting of economic giant China, have substantially accelerated the pace of US decline. In the meantime, violent crime and homelessness in many US cities (large and small) is surging, the US southern border is virtually uncontrolled, fentanyl demand and deaths persist, US government agencies have been weaponized against the citizens, society has embraced a deranged woke culture, and the US president is corrupt and essentially brain-dead (along with many members of Congress and the Deep State).

All the factors mentioned above suggest significant risks to wealth and well-being in the US.

Is there a way to ameliorate the situation? Yes. Move some of your assets out of the US and into an offshore trust, specifically, an offshore irrevocable life insurance trust, ILIT. The offshore ILIT then uses the assets to purchase offshore private placement life insurance, PPLI. An individual or family having a net worth of only $2 million to $5 million is financially able to fund an ILIT-PPLI structure.

The ILIT-PPLI structure can grow wealth tax-free, provide tax-free income to trust beneficiaries for generations (even perpetually), provide asset protection against all types of creditors forever, and manage family wealth and a family legacy.

The ILIT provides offshore asset protection. The settlor (or grantor), the individual who forms and funds the trust, allocates portions of the settlor's gift and estate tax exemption and generation skipping transfer tax (GSTT) exemption to the ILIT to cover the "completed gift" to the trust. As a result, estate and GST taxes will never be paid on distributions to trust beneficiaries. The ILIT can be set up to have a US domestic trustee and a foreign trustee. Management by the domestic trustee allows the trust to be treated as a domestic trust, making it less complicated when filing IRS tax forms. Assets are located outside of the US, however. If legal problems arise, the US trustee is terminated and the foreign trustee, outside of US jurisdiction, assumes trust management.

PPLI is designed to minimize death benefit and maximize growth of policy cash value. As with all life insurance policies under the U.S. tax code (IRC § 7702), no income or capital gains taxes are paid on investment growth of assets held in a private placement life insurance (PPLI) policy. Accordingly, assets in the life insurance wrapper grow tax-free and distributions to trust beneficiaries are tax-free. Because the ILIT owns the PPLI policy, distributions to beneficiaries are also free from estate and GST taxes. Accordingly, wealth can grow tax-free and be distributed to beneficiaries completely tax-free, perpetually.

During the life of the insured, policy loans based on the cash value can be distributed to beneficiaries tax-free. At the death of the insured, some of the death benefit can be used to purchase a new policy insuring the life of a younger beneficiary to continue the cycle as long as desired.

The ILIT-PPLI structure gets some assets out of the US, which is a good thing in itself. Foreign-based PPLI has advantages over domestic PPLI. It has lower minimum premium commitments (min. premium commitment usu. $1 million), compared to domestic PPLI and it has lower start-up fees and carrying costs. In contrast to foreign PPLI, domestic PPLI requires a minimum premium commitment of $5 million or more, only in cash, has higher fees, and is subject to state-imposed investment restrictions. Of course, as a variable product, PPLI is exposed to the market risks of its investments. Nevertheless, risk can be managed effectively by investment of policy assets in conservative and/or diversified funds.

An alternative to PPLI is a foreign deferred variable annuity (DVA).

Copyright © 2023 Thomas Swenson

Disclaimer: This information is intended for educational use only.

No client or potential client should assume that any information presented or made available on or through this article or linked websites may be construed as personalized planning or advice. Personalized legal advice can only be rendered after engagement of the firm for services. Please contact Law Office of Thomas J Swenson for further information.

Internal Revenue Service Circular 230 Disclosure: As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained herein (including attachments and links) is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any transaction or matter addressed herein.

For more detailed information about US tax-law compliant PPLI and dynasty trusts, please contact this office for a free consultation.

Visit Law Office of Thomas J Swenson to learn more about estate and legacy planning, wealth building and asset protection.

https://swenlaw.com

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