The EWP Da Vinci Code – Part 3

Expanded Worldwide Planning–EWP & Asset Protection

Private Placement Life Insurance (PPLI) in Action

The EWP Da Vinci Code–Part 3

The EWP Da Vinci Code - Part 3

 

Download PDF

The universality of Expanded Worldwide Planning (EWP) is not to be denied. This is objectified by Wikipedia. In the first sentence of their page on International Tax Planning, Expanded Worldwide Planning (EWP) is featured.

We are taking a cue from Wikipedia. Over the next few weeks, we will feature one of the six principles of Expanded Worldwide Planning (EWP). The six principles are: privacy, asset protection, tax shield, succession planning, compliance simplifier, and trust substitute.

Domestic Asset Protection Trust vs. Offshore Asset Protection Trust

Today we feature asset protection. In this segment we will discuss the development of Domestic Asset Protection Trust (DAPT) and Offshore Asset Protection Trust (OAPT). We again alert you to the fact that a simpler and more time-honored approach to asset protection is using life insurance. In a sense, asset protection comes automatically with Expanded Worldwide (EWP).

Advisors debate which is better: a DAPT or an OAPT. We say that they do serve a purpose for some clients, but why not adopt The EWP Da Vinci Code, and receive not only outstanding asset protection benefits, but all the six principles of Expanded Worldwide Planning (EWP) in one complete package?

Why bring Leonardo da Vince into this discussion? Because Leonardo said, “Simplicity is ultimate sophistication.” We have taken this as our model in implementing Expanded Worldwide Planning (EWP) in our PPLI asset structures. We invite you to do the same.

When you purchase an automobile, you do not ask if it has turn signals. Of course, this is a standard part of the vehicle. Today you may pay extra for an advanced guidance system (GPS), but you might be able to do without it.

“Asset protection does not come as an extra feature with Expanded Worldwide Planning (EWP), it is part of the package, just like turn signals on a new vehicle.” ~ Michael Malloy

As we will read, the controversial aspects of DAPTs and OAPTs arise out of public policy issues: is the use of this particular trust the best for the common good.

It is not our place to take a position on public policy issues. At Advanced Financial Solutions, Inc. our role is to assist wealthy families in their quest to implement the six principles of Expanded Worldwide Planning (EWP). Asset Protection is one of these six principles, and it is achieved through the financial planning tool of life insurance.

Life insurance is considered a societal benefit. Life insurance relieves governments from providing families with the needed cash at the death of the family’s income earner. Life insurance encourages savings for retirement through the accumulation of the cash value in the policy. PPLI is a form of life insurance, and thus bypasses much of the attention that is focused on trust structures.

In terms of the actual PPLI contract, all investments are held in separate accounts in the policy, thus, they are not in the insurance company’s general account. For this reason they are not subject to the creditors of the insurance company, if the company were to become bankrupt.

When government regulators look to curb what they would term abuses of public policy: in other words, wealthy families who have gone too far in stretching tax and trust law, aggressive trust structures are a frequent target.

We now give you a brief history of DAPTs and OAPTs, and the public policy issues that raise concerns with government regulators.

According to Wikipedia:

“An asset-protection trust is any form of trust which provides for funds to be held on a discretionary basis. Such trusts are set up in an attempt to avoid or mitigate the effects of taxation, divorce and bankruptcy on the beneficiary. Such trusts are therefore frequently proscribed or limited in their effects by governments and the courts.”

What we might call the modern asset protection trust was formulated in the late 1980s, and the first jurisdiction to adopt it was in the Cook Islands. These trusts had spendthrift provisions and could be self-settled. These OAPTs had a one year fraudulent conveyance statute.

The Cook Islands legislation was soon followed by similar laws in the Cayman Islands, Belize, Nevis, the Channel Islands, the Isle of Man, and numerous other international financial centers.

In 1997, Alaska passed legislation allowing for irrevocable, discretionary, self-settled trusts. Ninety days later, Delaware followed suit, and as of this date some 16 states have passed DAPT legislation.

The controversy surrounding DAPTs and OAPTs arises from the degree to which OAPTs, in practice, often defeat deep-seated precepts of U.S. trust law. A key precept is that one ought not control and benefit from property and at the same time shield it from one’s creditors.

The underlying policy rationale for the non-enforcement of self-settled spendthrift trusts is clearly stated in A. Scott’s The Law of Trusts:

“It is immaterial that in creating the trust, the settlor did not intend to defraud his creditors. It is immaterial that he was solvent at the time of the creation of the trust. It is against public policy to permit a man to tie up his own property in such a way that he can still enjoy it but can prevent his creditors from reaching it.”

For a U.S. wealthy family to form a DAPT, it is not necessary to form a trust in a jurisdiction outside the U.S., so this can make the process less expensive and time consuming. This takes us back to the old adage: “you get what you pay for.”

The greatest deficiency of DAPTs is that they are necessarily governed by U.S. law. The DAPT fails to achieve the jurisdictional separation required to fully protect the asset.

Since only a quarter of states currently have DAPT statutes, it is probable that states where litigation is taking place are those in which DAPTs are expressly prohibited as being against public policy. In a conflict-of-law analysis, it is difficult to envision any judge in a non-DAPT state agreeing to apply the laws of the DAPT state.

OAPTs are more secure for several reasons:

  • a foreign trust is not subject to the jurisdiction of the U.S. courts, so a U.S. attachment order will have no effect within that foreign jurisdiction;
  • furthermore, creditors seeking to reach the assets embark on independent legal proceedings in the foreign jurisdiction in which the trust is located;
  • even a favorable foreign judgment may be a hollow victory. The creditor still may not be able to satisfy that judgment from the assets held in the trust unless she proves that the transfer to the trust constituted a fraudulent conveyance.

Conclusion

Most asset protection trusts established by U.S. settlors are considered grantor trusts under U.S. income tax law, meaning that all income of the trust is reportable on the grantor’s (the settlor’s) individual income tax return. Asset-protection trusts do not, in and of themselves, offer any tax advantages under U.S. income tax law.

So why not create a trust that not only gives you asset protection, but the whole formidable array of benefits that Expanded Worldwide Planning (EWP) provides? To achieve this outstanding result, we suggest using an International Irrevocable Life Insurance Trust (ILIT) which owns a properly structured PPLI policy–The EWP Da Vinci Code.

The ILIT has been in use for decades; it has withstood numerous court challenges, and avoids the taint of opposing public policy that you acquire with DAPTs and OAPTs.

Regarding U.S,. tax laws, a properly designed International ILIT, governed by the law of a foreign jurisdiction, is treated virtually the same as a domestic ILIT. For wealthy U.S. families, or those families with a connection to the U.S., an International ILIT in combination with a properly structured PPLI policy, is arguably the most efficient structure for the integration tax-free investment growth, wealth transfer and asset protection.

Please contact us today to find out if The EWP Da Vinci Code is right for you.

 

by Michael Malloy, CLU TEP RFC, @ Advanced Financial Solutions, Inc

Michael Malloy-CLU-TEP

 

 

 

#michaelmalloy #PPLI #EWP #privateplacement #lifeinsurance #advancedfinancialsolutions

 

 

 

 

 

The EWP Da Vinci Code – 2

Expanded Worldwide Planning-EWP & Asset Protection

Private Placement Life Insurance (PPLI) in Action

The EWP Da Vinci Code–Part 2

The EWP Da Vinci Code - part 2

Download PDF

The universality of Expanded Worldwide Planning (EWP) is not to be denied. This is objectified by Wikipedia. In the first sentence of their page on International Tax Planning, Expanded Worldwide Planning (EWP) is featured.

We are taking a cue from Wikipedia. Over the next few weeks, we will feature one of the six principles of Expanded Worldwide Planning (EWP). The six principles are: privacy, asset protection, tax shield, succession planning, compliance simplifier, and trust substitute.

Quiet Protection of PPLI

Today we feature asset protection. Life insurance’s role as a protector of assets is quite different from our nature documentary example of a hunter and its prey. This role is more akin to the method used by dogs and cats in saving the lives of their families.

As you will read in the examples below, this protection was not brought about by physical strength. The type of strength we are speaking of is quietly hidden inside the frame of a small domesticated pet. This type of strength does not manifest until the proper circumstances arise. In this case, a threat to the master or family.

Life insurance in the form of PPLI can be seen to have this inherent quality of a quiet and inconspicuous protector of family assets.

Here are the examples:

From The Associated Press,

“Baby, a gray, white, and brown tabby cat, alerted a sleeping couple to a house fire in a Chicago suburb. Josh Ornberg and Letitia Kovalovsky were sleeping on a couch in the living room when Baby woke them, alarmed that a fire had broken out in the bedroom. The couple said that both they and the cat got out of the house safely.”

A CNN headline reads:

A German shepherd shielded his family from gunfire in a road rage incident. Michael Pearson’s article continues, “Following an altercation on an Atlanta road, the driver followed the family to a nearby strip mall and opened fire. The dog jumped in front of one of the children and a woman in the car and died of gunshot wounds behind a nearby building. Atlanta police Sergeant Gregory Lyon said,”They survived that only to find that their pet is now gone. It’s sad for the whole family, especially the day after Thanksgiving.”

Dog stays with owner for 20 hours after man breaks his neck in Michigan,” is the headline from Fox News. The story reads, “A Michigan man, Bob, slipped in the snow and broke his neck. With the closest neighbors far away, his golden retriever stayed with him for 20 hours. “By morning, my voice was gone and I couldn’t yell for help, but Kelsey didn’t stop barking,” Bob said. He lost consciousness, but Kelsey howled until a neighbor heard her and came to the rescue.”

Creditors vs. Debtors

By implementing the six principles of Expanded Worldwide Planning (EWP) through a properly structured PPLI policy, wealthy families achieve substantial asset protection benefits.

Historically trusts were employed to shield assets from excessive taxation, unreasonable claims of creditors, and bankruptcy. Trusts were developed in England originally to minimize the impact of inheritance taxes arising from transfers at death. The essence of the trust was to separate “legal” title, which was given to someone to hold as “trustee”, from “equitable title”, which was to be retained by the trust beneficiaries.

In both Roman times and as early as the 14th century in England, the use of trusts to shield lawful claims of creditors was recognized as a practice not conducive to sound public practice. Today we called it fraudulent conveyance.

The Romans utilized a type of trust known as a fideicommissum, which facilitated the transfer of assets at death. The Romans were also aware of the abuses of trust that went against public policy. Their great legal scholars Ulpian and Gaius developed the basic framework for the fraudulent conveyance laws as we know them today.

In England in the late 14th century, two laws were enacted that aimed to end popular types of fraudulent conveyance that were then in practice. One law sought to prevent debtors from conveying their lands to their friends until their creditors had come and gone away. Another law sought to end the practice of temporarily conveying their lands to “Lords and other great Men of the Realm” so as to deter creditors.

Another key component to our own asset protection laws are spendthrift clauses. A spendthrift provision creates an irrevocable trust preventing creditors from attaching the interest of the beneficiary in the trust before that interest (cash or property) is actually distributed to him or her.

These spendthrift provisions first became popular in the U.S. in the 19th century, and were controversial. Not just a few commentators thought that spendthrift clauses were a very bad idea. John Chipman Gray, a Harvard Law Professor whose half-brother (Horace Gray) was a U.S. Supreme Court Justice, registered his objections this way:

“The general introduction of spendthrift trusts would be to form a privileged class, who could indulge in every speculation, could practice every fraud, and, provided they kept on the safe side of the criminal law, could yet roll in wealth. They would be an aristocracy, though certainly the most contemptible aristocracy with which a country was ever cursed.”

Notwithstanding such objections, the spendthrift trust, of course, survived and thrived U.S. law.

Yet, such trusts had their limitations; for example, some states carved out exceptions for creditors holding judgments for unpaid alimony and child support. By far the biggest restriction was against spendthrift trusts which were self-settled trusts. That great commentator on trust law, George T. Bogert, firmly believed that the spendthrift provisions of self-settled trusts were unenforceable against public policy, and wrote:

“To hold otherwise would be to give unexampled opportunity to unscrupulous persons to shelter their property before engaging in speculative business enterprises, to mislead creditors into thinking that the settlor still owned the property since he appeared to be receiving its income, and thereby work a gross fraud on creditors who might place reliance on the former prosperity and financial stability of the debtor.”

In the late 1980s in the U.S. most legal practitioners were in agreement that spendthrift clauses could protect the rights of beneficiaries of trust, but you could not create a trust that exempted your assets from creditors, a self-settled spendthrift trust.

This leads us to our last segment of our Expanded Worldwide Planning (EWP) drama or play of opposites.

We look forward to bringing you Part 3 in our series on Asset Protection soon. Please give us your thoughts on what we have brought you so far.

Learning from each other is one of the great pleasures in life.

by Michael Malloy, CLU TEP RFC, @ Advanced Financial Solutions, Inc

Michael Malloy-CLU-TEP

 

 

 

#michaelmalloy #PPLI #EWP #privateplacement #lifeinsurance #advancedfinancialsolutions

 

 

 

 

Expanded Worldwide Planning-EWP & Asset Protection

Private Placement Life Insurance (PPLI) in Action

The EWP Da Vinci Code–Part 1

Download PDF

The universality of Expanded Worldwide Planning (EWP) is not to be denied. This is objectified by Wikipedia. In the first sentence of their page on International Tax Planning, Expanded Worldwide Planning (EWP) is featured.

We are taking a cue from Wikipedia. Over the next few weeks, we will feature one of the six principles of Expanded Worldwide Planning (EWP). The six principles are: privacy, asset protection, tax shield, succession planning, compliance simplifier, and trust substitute.

The EWP Da Vinci Code

Today we feature asset protection. As you will read, our asset protection model is called The EWP Da Vinci Code. Our model is highly effective, yet conservative, and much less exposed to scrutiny than the recently invented options available to wealthy families. In today’s world of financial transparency, there is no hiding of financial assets. The EWP Da Vinci Code brings you peace of mind through a long-established and secure financial structure–life insurance, in the form of PPLI.

Asset Protection is a prudent subset of financial planning. As we will read later in this article, some consider asset protection a deceptive, sleight-of-hand trick that deprives creditors from receiving what is lawfully due to them. The law is a double-edged sword that cuts both ways. Our article deals with both sides of this sharp blade.

We take an expansive approach to asset protection and Expanded Worldwide Planning (EWP), and how Private Placement Life Insurance (PPLI) produces a simple and straightforward solution to this drama? What is the drama you correctly ask?

We will call our drama the Expanded Worldwide Planning (EWP) drama, since this is, in a sense, our main character. Our sub-plots in this drama are:

  • One Side of the Sharp Blade vs. the Other Side of the Sharp Blade
  • Hunters vs. Prey
  • Creditors vs. Debtors
  • Domestic Asset Protection Trust vs. Offshore Asset Protection Trust

Our theme of opposites is aptly expressed by the opening lines of A Tale of Two Cities by Charles Dickens. These profoundly simple lines express the hopes and fears of all ages:

It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way….”

Why call it a drama? Our clients come to us to implement the six principles of Expanded Worldwide Planning (EWP) by incorporating PPLI into their asset structure. Our wealthy clients have achieved this great wealth for the most part through hard work, intelligence, and some element of being in the right place at the right time. They wish to be good stewards of this wealth, and pass it onto future generations, but encounter various antagonists. Hence, a drama unfolds.

Both Sides of the Sharp Blade

What we term the Sharp Blade is our legal system, particularly in the U.S. According to One Legal, it is estimated that there are more than 40 million lawsuits filed in the U.S. every year.

For better or worse, the legal system is adversarial. If you are sued you must defend yourself or risk losing the lawsuit by inaction. Both sides present their best case and a judge or jury decides what shall be done with the issue, or the parties negotiate a settlement between themselves before the case goes to trial.

If you are a professional person or own a business, you are at risk of being sued, and it behooves you to protect yourself. Different types of insurance can mitigate the risk for you, but not for all situations. If insurance does not come to your rescue, then, your assets are exposed to being seized and sold to pay a judgement against you.

Wealthy families, who may be immigrating from a country like China that is not nearly so litigious, may not even consider this possible threat to their assets. Expanded Worldwide Planning (EWP) through the proper implementation of a PPLI policy offers asset protection by its very nature. Not as a separate complicated trust structure, but because life insurance has a very favored position in the eyes of the law in respect to asset protection. This will be explained in more detail in other sections of our drama.

Hunters vs. Prey

Watch a nature documentary and you will see this sub-plot of our Expanded Worldwide Planning (EWP) drama unfold. Frequently, the strong and fast feast on the weak and slow, but not always. Nature has a stealthy way of protecting the weak and slow. You might call this method camouflage, hiding in plain sight. Instead of trying to run away from predators, or overpower them, they quietly remain in the same place.

Some asset classes are favored by law. These assets provide the debtor with a greater level of protection from the claims of creditors than would other asset classes. This is so for life insurance, because it is considered essential for the debtor’s family to maintain at least a minimum level of well-being, and not become a burden to that state.

The federal bankruptcy exemption for life insurance policy unmatured death benefit is quite small, currently only $12,500. Many states provide a more extensive exemption of life insurance than federal law. The states vary widely in whether they exempt only the beneficiaries of the life insurance contract, family members of the insured, or the owner of the contract. There is also a wide disparity on the protection of the cash value, if any, inside the contract of life insurance. This protection also differs as to whether the exemption is applied in a bankruptcy context or a non-bankruptcy context.

Please contact us today to find out if The EWP Da Vinci Code is right for you. We will continue next week with Part 2. Look forward to your questions and comments.

 

by Michael Malloy, CLU TEP RFC, @ Advanced Financial Solutions, Inc

Michael Malloy-CLU-TEP

 

 

 

#michaelmalloy #PPLI #EWP #privateplacement #lifeinsurance #advancedfinancialsolutions