A recent Forbes article addresses an interesting question: “If the U.S. Federal Estate Tax Goes Away, What Will Single-Family Offices Likely Do?” Even if the tax was eliminated, senior executives at single-family offices will still have to look at non-estate tax estate issues. These include issues such as the transfer of control of assets and how funds are to be distributed among heirs. Estate planning won’t go away. In fact, estate plans will need to be reviewed and reworked to address the changes in the laws.
Likewise, life insurance purchased to pay estate taxes will also need to be reviewed. One way to do this is to convert permanent policies with meaningful cash values into private placement life insurance policies (PPLI).
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. PPLI is designed to maximize savings and minimize the death benefit.
The investment account typically uses tax-inefficient hedge fund strategies. PPLI can be especially useful as an element of more complicated tax strategies
With advances in technology and greater efficiencies, private placement life insurance is becoming more popular for more wealthy individuals.
People who operate single-family offices are also becoming more aware of the opportunities for PPLI as part of the financial portfolios of their clients. The use of PPLI may increase quickly and considerably if these families are no longer required to keep traditional life insurance policies purchased to pay estate taxes.
The elimination of the federal estate tax will hinge on the presidential election and how Congress acts on the issue.
Reference: Forbes (September 29, 2016) “If the U.S. Federal Estate Tax Goes Away, What Will Single-Family Offices Likely Do?”