Judas Distribution Considerations Foreign PPLI Master_FINAL

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PPLI & PPVA DISTRIBUTION

CONSIDERATIONS IN A FOREIGN REGULATORY

ENVIRONMENT

www.PPLIconference.com




CONSIDERATIONS & ASSUMPTIONS AHEAD OF THE SALE


uHNWi > USD 30MM

STRUCTURE DRIVEN

AMERICA ROCKS!!

ACCESS TO U.S. DOLLAR

INSTITUTIONAL RELATIONSHIPS

AMERICA, YIKES!!

STAGE OF GOV’T

REGULATORY MATURITY

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WHO IS IN CHARGE OF THE UHNWI

CLIENT?

ADVICE/INFLUENCE CONTROL

ASIA-PACIFIC PRIVATE BANK

ASSET MANAGER

PRIVATE BANK

LATIN AMERICA PRIVATE BANK

LAWYER

WEALTH MANAGER

PRIVATE BANK

MIDDLE EAST PRIVATE BANK PRIVATE BANK

JAPAN ACCOUNTANT

PROFESSIONAL SERVICES

ACCOUNTANT

PROFESSIONAL SERVICES

NORTH AMERICA LAWYER

ACCOUNTANT

FINANCIAL PLANNER

FAMILY OFFICE

TRUSTEE

FREE-FOR-ALL

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FOREIGN STRATEGIES FOR PPLI & PPVA


Not dissimilar from U.S.

Use PPLI to re-characterize an investment such as a fund as life insurance.

Use PPLI or PPVA instead of a trust or similar structure – trust officers are no

longer competitors.

Transaction often handled by an insurance broker who either is also selling the

investment or closely aligned with whomever is – perhaps the same owner like a

fiduciary or corporate services provider.

A privacy and protection application

Utilizing a life insurance company and policy to handle transactions

such as purchases and dispositions.

Allows for greater discretion in ownership and lending.

FUND/INVESTMENT WRAP

ALTERNATIVE FOR

WHOLE LIFE

DISCRETION

Just add death benefit

Uses a client’s existing investments and assets as the underlying cash value

of a high death benefit PPLI so the client enjoys lower cost and growth in the

policy along with investment growth.

Allows for Asset Managers & Family Offices to offer life insurance without

introducing a new relationship to the client.

Non-Private Banks can compete against premium financing of universal life

policies.

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CLIENT CASE STUDY #1 PROTECTION


Twenty-five years ago, Edward Lim took his electronics manufacturing business public on his country’s exchange. By law, Edward could not own more than 49% of the shares of the company so he arranged several close friends to be small shareholders. Mr. Lim could then have de facto majority ownership.

Now, though, Edward faces the real possibility that when he and his friends pass away, his family will be in business with the families of his friends and the friendly arrangements will not continue.

How can Edward retrieve the majority interest in the electronics company?





CLIENT CASE STUDY #1 PROTECTION

THE SOLUTION:

Edward wraps some cash in a PPVA or PPLI contract. Under a pre-arranged buy and sell,

the insurer, as instructed by Edward’s existing custodian or manager goes into the

market and purchases the shares back from Edward’s friends. It is not unusual for

insurance companies to make purchases on stock exchanges.

Afterward, Edward maintains majority control of the company through his personal

ownership and that held by the insurance company.

The PPLI contract must have an initial corridor of at least 10% to qualify as life insurance

under local law. Although tax on growth is sheltered, foreign insurance does not

receive the same estate tax break as local carriers so PPLI use for estate purposes is not

recommended.

Incidentally, Edward could have employed PPLI or PPVA prior to going public years ago

to hold company stock instead of parceling out shares to his friends.

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CLIENT CASE STUDY #2 EFFICIENCY/DISCRETION


Shilpa Vaswani is a nonresident Indian living in Dubai. She would like to purchase property back in India but would rather not participate in the excessive reporting and tax filing required of NRIs. Shilpa would also not wish to call attention to her wealth.

How can Shilpa more efficiently purchase this property in India and maintain discretion?

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CLIENT CASE STUDY #2 EFFICIENCY/DISCRETION


THE SOLUTION:

NRIs have a much higher tax and regulatory reporting responsibility than other foreigners

when buying property in India. In order to become a non-NRI foreigner with less

reporting, Shilpa wraps cash in a PPVA contract and has her investment manager

direct the insurance company to purchase the desired property.

Regulators note the purchase by a foreign life insurance company and treats the

transaction as a ‘foreigner’ making an investment. It is not apparent through ownership

title that it is a policy and not an insurer making the transaction.

If Shilpa were to chose a PPLI instead of a PPVA, the PPLI will have as little life

insurance cover as possible—likely 1%. Since the policy is not medically

underwritten, a second life can be added so that at the death of one life, the policy

continues and Shilpa’s heirs are not forced to sell the underlying property.

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CLIENT CASE STUDY #3 TAX OPTIMIZATION

David Yosimura has USD 20MM in a bank account outside of his country. On January 1st 2014, he was required under his country’s law to report all financial holdings outside of his country and to begin paying the requisite taxes on those investments. In other words, David is now part of an enforced worldwide taxation regime brought about from government austerity measures.

After nearly two years of paying taxes on the gains on those investments, David has asked his accountant for a way to mitigate that expense.

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CLIENT CASE STUDY #3 TAX OPTIMIZATION

THE SOLUTION:

David elects to wrap either USD 20MM in investments or USD 20MM in cash

where his existing investment manager will direct the insurer on how to invest.

The PPLI contract will have as little life insurance cover as possible—likely 1%--

since his country’s insurance law is more concerned about a discretionary

investment mandate being in place as opposed to the size of the risk corridor.

David, under his country’s law, must report the life insurance policy and include

the death proceeds in the calculation of his estate but now enjoys tax-free

build-up in the insurance contract as long as the insurance contract is in place.

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CLIENT CASE STUDY #4 DISCRETION

Asmara Bambang lives outside of Jakarta and, like most wealthy Indonesians, keeps the bulk of her wealth offshore with a private bank in Singapore. As is common with assets held at private banks in Singapore, Asmara leverages her account to buy other investments. She used to be able to take a loan from her bank, Bank of Singapore, and use the proceeds to purchase property in Indonesia.

Indonesian law has changed so that those with bank accounts in Singapore who wish to leverage those accounts to make purchases in Indonesia must now state if there is an assignee on the purchase. This would alert the Indonesia government to Asmara’s offshore holdings.

Asmara needs a way to use her cash and investments in Singapore to buy some land north of Jakarata.

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CLIENT CASE STUDY #4 DISCRETION

THE SOLUTION:

Asmara purchases a PPVA to wrap investments and cash in her account at Bank of

Singapore as in-kind and cash premium and leverage is now made against the

insurance policy where the insurer is the purchaser of property in Indonesia

and the Bank of Singapore is the investment manager directing the purchase.

If Asmara were to use a PPLI instead of a PPVA, she would elect as little life

insurance cover as possible—likely 1%.

Incidentally, Asmara used to be able to use a trust to hold her assets but trust

and estate law in Indonesia and many other countries has progressed so

that trusts are seen through. This makes trust officers, who used to view

PPLI & PPVA as competition, recent proponents of the structure.

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CLIENT CASE STUDY #5 FORCED HEIRSHIP ASIA-PACIFIC

Mengrai Gee is a non-Muslim living in Thailand. Similarly for wealthy Chinese and Indonesians, inheritance of property in Thailand follows a certain hereditary path by law. Sixty percent follows the first bloodline which does not include one’s spouse. A spouse is included in the second bloodline with uncles and aunts.

Mengrai would like to have his wife, Lalana, inherit the bulk of his private company and estate instead of his children in the first bloodline.

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CLIENT CASE STUDY #5 FORCED HEIRSHIP ASIA-PACIFIC

THE SOLUTION:

Mengrai buys a PPVA contract to wrap a number of assets intended for his wife and

custodies them for management with the Bank of East Asia in Hong Kong.

Now there is offshore ownership of his assets which will be distributed offshore to

Lalana at his death. If a PPLI is chosen instead of a PPVA, he would elect a contract

with as little life insurance cover as possible—likely 1%.

The Bank of East Asia will cooperate since the bank earns and retains AUM while

Mengrai remains in control of his assets during his lifetime.

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CLIENT CASE STUDY #6 ALTERNATIVE TO WHOLE LIFE

Maria Poza is an asset manager at a family office in Coral Gables. She has a client from Chile

who needs USD 20MM in life insurance coverage for estate planning and the client has

heard from friends that they had their universal life policies financed by private banks at a

very attractive lending rate. The client would like to know if Maria can structure a similar

arrangement.

The idea of paying quarterly interest only on a premium loan of USD 6MM for USD 20MM

of cover is attractive to the client.

Under no circumstances does Maria want to introduce a new relationship to her client—

especially a banker! Maria has a lot of similar clients who could use life insurance but she

has always been hesitant to introduce not only a new financial relationship but also of

losing AUM to an insurer, and quite possibly, a competing bank.

How can Maria find a cost effective way to get her client the USD 20MM of life cover?

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CLIENT CASE STUDY #6 ALTERNATIVE TO WHOLE LIFE

THE SOLUTION:

Maria arranges to have USD 10MM of investments managed by Maria’s family office to be used

as the underlying cash value of a USD 20MM death benefit PPLI contract. The insurer

simply adds life over the investments already in place.

The client is thrilled to learn that she does not have to apply for a loan or set up a new bank

account and that she must only pay a reduced premium charge, a small, annual asset

management charge and cost of insurance on a lessor amount of net amount at risk---USD

10MM with the PPLI versus the initial USD 14MM with the universal life. Further, as her

investments grow, so does the policy so the client is not stuck with the crediting rate from a

whole life insurer. There are no surrender charges like with a universal life contract.

Essentially, Maria has used what the client already has with her to create a high death benefit

insurance policy which mimics a universal life. Management and custody remain the same.

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CLIENT CASE STUDY #7 FORCED HEIRSHIP LATIN AMERICA

Juan Duarte, 46, of Los Toldes, Argentina dies in a head-on collision while driving home from one of the factories he owns. His daughter, Eva, and her mother, Juana, were stunned to be turned away from the funeral and to learn they would receive nothing from the estate, including funds in a nonresident alien account at EFG in Miami.

As Juan Duarte was married to another woman and Juana and Eva were part of his ‘second family’, the Catholic Church would frown upon anyone but family members from a legitimate marriage receiving an inheritance.

Fortunately, Eva grows up to marry Juan Perón and becomes the incredibly popular first lady of Argentina, Evita Perón. Therefore, “don’t cry for me Argentina” but what could Evita’s father have done to see to the needs of his second family while preserving his reputation in the eyes of the Catholic Church and, thus, his community?

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CLIENT CASE STUDY #7 FORCED HEIRSHIP LATIN AMERICA

THE SOLUTION:

Juan Duarte should have used the cash or investments in his EFG Bank account as the

underlying cash value for a PPLI policy. This policy could be a ‘pure wrapper’ without

medical underwriting considerations or include a medically underwritten net amount at risk.

The death benefit could have both families as beneficiaries which would keep the ‘legitimate’

family satisfied they were receiving the proceeds of the EFG account (about which they

may or may not have knowledge) in a form of a tax-advantaged life insurance benefit.

Given the uncertainty of where beneficiaries may be living at the time of receipt of the death

proceeds, accounts or structures for each family at EFG Bank would be the named

beneficiary.

EFG Bank will be cooperative since they will retain AUM and control of the premium instead

of losing money to a life insurer selling a whole life product.

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FINES UP TO USD 20MM & 30 YEAR IN PRISON

OFFICE OF FOREIGN ASSETS

CONTROL

THE OFFICE OF FOREIGN ASSETS CONTROL ADMINISTERS AND ENFORCES ECONOMIC

SANCTIONS PROGRAMS PRIMARILY AGAINST COUNTRIES AND GROUPS OF INDIVIDUALS, SUCH AS TERRORISTS AND NARCOTICS TRAFFICKERS. THE SANCTIONS CAN BE EITHER COMPREHENSIVE OR SELECTIVE, USING THE BLOCKING OF ASSETS AND TRADE RESTRICTIONS TO ACCOMPLISH FOREIGN POLICY AND NATIONAL SECURITY GOALS.

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CONSOLIDATED SANCTIONS LISTS WWW.TREASURY.GOV/RESOURCE-CENTER/SANCTIONS/SDN-LIST/PAGES/CONSOLIDATED.ASPX

Foreign Sanctions Evaders (FSE)

List

Sectoral Sanctions

Identifications (SSI) List

Palestinian Legislative

Council (NS-PLC) list

The List of Foreign Financial

Institutions Subject to Part

561 (the Part 561 List)

Non-SDN Iranian Sanctions Act (NS-ISA) List

SPECIALLY DESIGNATED NATIONALS &

BLOCKED PERSONS LIST (SDN) WWW.TREASURY.GOV/RESOURCE-CENTER/SANCTIONS/SDN-LIST/PAGES/DEFAULT.ASPX

THE WHO’S WHO

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http://www.treasury.gov/resource-center/sanctions/SDN-List/Pages/fse_list.aspx



http://www.treasury.gov/resource-center/sanctions/SDN-List/Pages/ssi_list.aspx




http://www.treasury.gov/resource-center/sanctions/Terrorism-Proliferation-Narcotics/Pages/index.aspx





http://www.treasury.gov/resource-center/sanctions/Programs/Pages/iran.aspx#part561






http://www.treasury.gov/resource-center/sanctions/Programs/Pages/iran.aspx#isa











THANK YOU

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Judas Distribution Considerations Foreign PPLI Master_FINAL