Asset Protection and Tax-No cost Investments for the Moderately Wealthy

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An individual or family having a net worth of only $1 million or even less is financially able to fund an offshore, irrevocable life insurance trust (ILIT) that provides a life insurance benefit, asset protection, tax-free growth of a variable high-yield investment portfolio, tax-free policy loans during the life of the insured, tax-free payment of policy proceeds to the trust upon death of the insured and tax-free distributions to beneficiaries.

Private placement life insurance (PPLI) is a privately negotiated life insurance contract between insurance carrier and policy owner.

Offshore PPLI policies are more favorable than domestic PPLI based in United States.

An offshore irrevocable life insurance trust (ILIT) optimizes tax free wealth building and the financial security of PPLI beneficiaries, as well as providing protection of policy assets and other trust property against the claims of beneficiaries' creditors. If the trust assets are not invested in life insurance, then U.S. income tax and capital gains tax are paid on investment growth in the trust. On the other hand, if and when trust assets are invested in a life insurance policy, investment growth is not taxed.

Also, when policy proceeds are paid to the trust (as policy beneficiary) upon death of the insured, no income tax, no estate tax and no GST tax are payable. The overall result is that trust beneficiaries benefit from tax-free life-insurance investment growth and tax-free wealth transfer perpetually. The tax advantages of life insurance are available with conventional policies, not just through PPLI.

Full compliance with U.S. tax law is an important characteristic of a preferred structure that includes an offshore asset protection trust owning offshore PPLI. The offshore advantages are very secure asset protection, lower insurance costs, and greater investment flexibility.

For example, a conventional (non-private-placement) offshore life insurance policy owned by an offshore life insurance trust provides asset protection and favorable tax treatment (i.e., no taxes on income, capital gains and estate), but policy assets would be held in the insurer's general fund and investment returns would be lower.

Estate tax and GSTT exemptions can be leveraged by contributing assets to the life-insurance trust before high growth occurs.

The antidote, or vaccine, against these threats to financial well being is a self-settled asset-protection PPLI irrevocable life insurance trust (also known as a dynasty trust or GST trust). At the discretion of the trustee, trust assets (including tax-free insurance policy loans) are available to the settlor during his lifetime. Upon death of the insured, policy proceeds are paid tax-free to the trust. The assets in a well-managed dynasty trust grow perpetually.