Asset Manager - Asset protection and Tax-Free Investments For the slowly Wealthy
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Asset protection and Tax-Free Investments For the slowly Wealthy
Life assurance is an underutilized, but potentially versatile and highly effective venture vehicle. It is useful not only for wealthy families. An individual or family having a net worth of only million or even less is financially able to fund an offshore, irrevocable life assurance trust (Ilit) that provides a life assurance benefit, asset protection, tax-free increase of a changeable high-yield venture portfolio, tax-free policy loans while the life of the insured, tax-free cost of policy proceeds to the trust upon death of the insured and tax-free distributions to beneficiaries.
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It is well known that acceptable whole and universal life assurance policies contribute tax-deferred increase of the policy's cash or venture value. The cash value of a acceptable policy, however, is part of the normal venture fund of an assurance company. increase of cash value within the policy is commonly relatively low, regularly a few percent annually. Also, the policy is only as gather as the assurance company. policy funds are commonly commingled with the insurer's normal fund, and the policy owner or beneficiaries basically are unsecured creditors of the life assurance company. In case of bankruptcy of the insurer, policy assets could be lost.
Private placement life assurance (Ppli) is a confidentially negotiated life assurance covenant between assurance carrier and policy owner. Ppli offers some advantages compared to acceptable policies. policy funds are held in segregated accounts that safe the funds against the carrier's creditors. Ppli enables a wider range of venture opportunities managed by a expert venture adviser premium by the policy owner. Finally, policy costs are transparent, negotiable and typically lower than off-the-shelf assurance products. A qoute with domestic assurance associates gift Ppli in the U.S., however, is that they typically require a minimum assurance premium commitment of million to million.
Offshore Ppli policies are more favorable than domestic Ppli based in United States. Offshore assurance associates are not branch to correct Sec and state assurance regulations in the U.S., which limit the types of investments available to domestic assurance policies. Further, offshore Ppli policies are not branch to the state premium taxes expensed by the assorted states. Although a policy issued by a foreign assurance carrier is branch to a 1% U.S. Excise tax, this is balanced by not being branch to the federal deferred acquisition cost (Dac) tax. One of the major benefits of offshore Ppli is that it is offshore, meaning that the offshore life assurance carrier can be premium so that it is not branch to the jurisdiction of U.S. Courts. Offshore Ppli typically has a minimum premium commitment of million or even less over five to seven years, and fees linked with offshore Ppli are typically about 1.5% to 2% of premium load.
An offshore irrevocable life assurance trust (Ilit) optimizes tax free wealth building and the financial security of Ppli beneficiaries, as well as providing security of policy assets and other trust property against the claims of beneficiaries' creditors. An offshore trust is not branch to the jurisdiction of U.S. Courts and other U.S. Government agencies. A number of offshore countries have adopted legislation specially designed to safe trusts registered in their jurisdictions against assault by face courts and governments. An offshore trust jurisdiction typically requires that a trust pay an each year government registration fee and use the services of a local trustee. Since trust enterprise is an foremost revenue source and contributes to the local economy, offshore jurisdictions are motivated to safe the integrity of locally registered asset-protection trusts against face creditors of trust beneficiaries.
In a hypothetical example, a U.S. Taxpayer establishes an irrevocable offshore asset security trust, for example, in the Cook Islands (South Pacific) or Nevis (Caribbean). Initially or over the next five to seven years, the individual irrevocably contributes to the trust assets having a value equal to the current lifetime exemptions for estate tax and generation skipping replacement tax (Gstt), for example, million. The U.S. Taxpayer allocates his lifetime exemptions to the trust contributions, thereby creating a dynasty trust that will be free of U.S. Estate and Gst tax perpetually. If the trust assets are not invested in life insurance, then U.S. revenue tax and capital gains tax are paid on venture increase in the trust. On the other hand, if and when trust assets are invested in a life assurance policy, venture increase is not taxed.
Also, when policy proceeds are paid to the trust (as policy beneficiary) upon death of the insured, no revenue tax, no estate tax and no Gst tax are payable. The unabridged consequent is that trust beneficiaries benefit from tax-free life-insurance venture increase and tax-free wealth replacement perpetually. The tax advantages of life assurance are available with conventional policies, not just straight through Ppli. An benefit of Ppli is greater venture flexibility, which allows greater venture increase potential. An further benefit of a adored buildings including a self settled, irrevocable life assurance trust is that the settlor (the man establishing and funding the trust) may benefit from the trust while his lifetime straight through tax free insurance-policy loans, at the discretion of the trustee. Initial expert fees (legal and accounting services) for setting up a adored buildings are typically in a range of about from K to K. each year trust and trustee fees are commonly about ,000.
Full yielding with U.S. Tax law is an foremost characteristic of a adored buildings that includes an offshore asset security trust owning offshore Ppli. In fact, the adored buildings recommended here is tax neutral, that is, there are no tax advantages or disadvantages resulting from being offshore. Formation and management of the offshore Ilit buildings is slightly more complicated and costly than a domestic trust. But, unless there are creditor problems, the trust is administered and treated as a U.S. Trust for U.S. Tax purposes. Although a few extra forms must be submitted to the Irs annually, the tax situation is the same whether onshore or offshore. The offshore advantages are very gather asset protection, lower assurance costs, and greater venture flexibility.
The greater venture flexibility of offshore Ppli, especially compared with conventional life insurance, is the quality to spend policy funds in high-growth assets, such as hedge funds or start-up companies. As a formality, policy assets are held in segregated accounts owned and managed by the assurance company. Typically, the assurance enterprise directly or indirectly hires an asset employer recommended by the policy owner, often the same employer who manages the settlor's other non-trust assets. Some of the same benefits of a adored buildings can be achieved using less adored structures. For example, a conventional (non-private-placement) offshore life assurance policy owned by an offshore life assurance trust provides asset security and favorable tax medicine (i.e., no taxes on income, capital gains and estate), but policy assets would be held in the insurer's normal fund and venture returns would be lower.
An irrevocable life assurance trust (Ilit) and an offshore Ppli policy can be funded using assorted types of assets, basically whatever to which a value can be attached: stocks, bonds, hedge funds, commodities, collectibles, real estate, enterprise enterprises. Equity stripping of assets placed in the United States straight through loans on real estate and enterprise equipment can be used to create cash for gift to an offshore asset-protection life-insurance trust. Estate tax and Gstt exemptions can be leveraged by contributing assets to the life-insurance trust before high increase occurs. Promissory note sales and discounting of closely-held property can also be used to leverage estate tax and Gstt exemptions. A married consolidate can use both spouses' lifetime exemptions to fund the trust.
The long-term outlook for the Us dollar and the U.S. Cheaper is bad. The U.S. Manufacturing base is deteriorating and intriguing overseas. Services such as software development, technical support, accounting and legal work are migrating from the U.S. To low-paying developing countries. Consumption of imported petroleum and cheap man-made goods causes a constant drain of dollars out of the U.S. Economy, which are then borrowed back coupled with interest. The U.S. National debt of .3 trillion (August 2010) is insurmountable, unless it is paid down straight through inflation.
Federal spending on the military, foreign wars and domestic entitlement programs is seemingly uncontrollable, and the each year deficit will only be contained straight through draconian tax increases. The nonpartisan Peter G. Peterson Foundation reports that the federal government as of September 2009 faces a total .9 trillion in unfunded liabilities over the next 75 years that are not covered by predicted tax revenue. The Government responsibility Office has predicted that the interest costs on the growing debt together with spending on major entitlement programs could digest 92 cents of every dollar of federal revenue in 2019.
The individual states and local jurisdictions are sinking under the weight of ill-conceived and irresponsible payment and pension plans for civil servants, as well as federally-mandated collective engineering and entitlement programs. whether straight through the predicted Obama tax hike or by some other impetus, sooner or later, the U.S. Congress, states and local governments will drastically increase effective tax rates for U.S. Residents. The U.S. Cheaper will probably not disintegrate overnight, although it almost did in September 2008. Nevertheless, as a practical matter, earning money and retention it will come to be much harder in the advent years. Further, any man living in the U.S. Can be sued by whatever for almost any reason, and the cost of defending a lawsuit can be as much or more than plainly paying to make it go away. An individual or enterprise owning primary assets placed in the U.S., or an individual trying to earn a living or run a business, is hostage to these realities.
The antidote, or vaccine, against these threats to financial well being is a self-settled asset-protection Ppli irrevocable life assurance trust (also known as a dynasty trust or Gst trust). The adored buildings provides some primary benefits to the settlor and other beneficiaries. It moves substantial assets offshore, where U.S. Courts or other government agencies cannot levy them. It allows tax free increase of a global, changeable venture portfolio managed by a trusted financial adviser in full yielding with U.S. Tax laws. At the discretion of the trustee, trust assets (including tax-free assurance policy loans) are available to the settlor while 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. Thus, the dynasty trust secures the financial well being of spouse, children and their descendants perpetually. These benefits are especially primary in a world of punitive taxes, deteriorating employment opportunities, decreasing incomes, mismanaged economies, overpopulation, disintegrating societies, unnecessary wars and corrupted governments. straight through creative legal and financial planning, these benefits are now available to moderately wealthy individuals and families.
Warning & Disclaimer: This is not legal advice.
Copyright 2010 - Thomas Swenson
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