By Cliff Oberlin, Chairman and CEO, Oberlin Wealth Partners
Affluent investors are truly concerned with the money they pocket as opposed to the money they earn. Even the best performing investments can be much less impressive when taxes are taken into consideration. Tax-efficiency can make a great difference.
There are a number of ways to lessen the tax bite of many investments. And, it is usually smart to consider all the various ways to do so when investing. One approach that has gained a great deal of traction with single-family offices and the very wealthy is using private placement life insurance (PPLI).
According to Peter Sasaki, Managing Member of SDS family Office and co-author of Maximizing Your Single-Family Office: Leveraging the Power of Outsourcing and Stress Testing, “Family offices, more than ever, are making extensive use of PPLI. They are benefiting from the tax free build up, the ability to select their own money managers as opposed to relying on the investment skills of the insurance companies, and they also gain from the death benefit. Overall, for the right families, PPLI is a very powerful investment and wealth planning tool.”
“Private placement life insurance is a variable universal life insurance policy that provides cash value appreciation based on a segregated investment account and a life insurance benefit,” explains Frank W. Seneco president of Seneco & Associates Inc., a boutique advanced planning firm and a leading expert in the field of PPLI. “It’s important to understand that PPLI is life insurance that is less expensive and provides greater investment control to the wealthy. Aside from the inherent advantages of PPLI, it can be very effective as part of sophisticated wealth planning.”
If a person, for example, has a significant windfall that results in a large infusion of ordinary income in a particular year, such as a large bonus for an executive or business owner, private placement life insurance, in conjunction with a charitable trust, can offset the tax while supporting charities, including private foundations. All in all, with proper planning, the cash value appreciation and insurance coverage can also escape inheritance taxes. It can also be structured to provide exceptional asset protection results.
According to Russ Alan Prince, one of the leading authorities on family offices and co-author of Everyone Wins! How You Can Enhance and Optimize Business Relationships Just Like Ultra-Wealthy Entrepreneurs, “The use of private placement life insurance as well as other tax minimization or elimination strategies is always in high demand. Very often leading family offices will evaluate the possibilities early on and then as their experiences prove out the approach, those less affluent follow suit. This is the case with private placement life insurance today. What’s always extremely important is for the wealthy to make sure the PPLI solutions they are considering make business sense, the costs are controlled, and they clearly understand their investment and related options.”