US Tax Planning for Passive Investments

In her 10/18/06 Wall St. Journal article, Insuring In opposition to Hedge-Fund Taxes, Rachel Emma Silverman acknowledged:

“A small however rising variety of rich buyers have found a authorized method to spend money on hedge funds with out paying revenue taxes on the positive factors. It is referred to as “non-public placement” life insurance coverage. These particular insurance coverage contracts permit policyholders to spend money on a variety of merchandise, together with hedge funds. The primary attraction: As a result of the investments are held inside an insurance coverage wrapper, positive factors contained in the coverage are shielded from revenue taxes – as is the payout upon demise. What’s extra, policyholders might be able to entry their cash throughout their lifetimes by withdrawing or borrowing funds, tax-free, from the coverage… “

“Personal-placement insurance coverage insurance policies are basically variable insurance coverage insurance policies, which permit policyholders to take a position a portion of their premiums in separate funding accounts… “

“The technique’s chief benefit is the tax advantages that every one life-insurance insurance policies provide: Property inside a life insurance coverage coverage can develop tax-free, and the demise profit will also be paid out freed from revenue tax… “

Tax Planning Technique for Passive (Portfolio) Investments

U.S. taxpayers can obtain higher net-after tax returns and superior asset protection for his or her home or worldwide funding portfolios by utilizing a tax planning technique using non-public placement life insurance coverage. The profit is maybe best when mixed with investments like hedge funds which might be taxed at atypical revenue charges and likewise the place taxable unrealized revenue tax and positive factors are flowed out yearly to fund shareholders.

A abstract of the advantages are as follows:

1) Taxable atypical revenue and short-term capital positive factors (taxed at 35% federal tax charge) now wholly tax exempted.

2) For International Trusts, funding portfolio revenue now compounds tax-free yearly with no accumulation tax.

three) Pre-empts IRS tax audits on funding portfolio revenue since there may be neither any revenue tax nor any reporting due on the funding portfolio revenue.

four) Absent a fraudulent conveyance, funding portfolio property are instantly exempt from creditor seizure as soon as held by the coverage tax relief attorney.

5) U.S. tax compliance is minimized for filings: that’s, no TDF 90-22.1 (“FBAR” submitting), or IRS Kind 8938 (Assertion of Specified International Financial Property).

For U.S. taxpayers, the technique requires that the investments are owned and held by a Puerto Rico issued Life Insurance coverage policy- Puerto Rico is a US Commonwealth Territory and thought of “US” for a lot of sensible functions, however with design and funding flexibility sometimes discovered “offshore”. In flip, the coverage may very well be owned by a U.S. Grantor Belief, domiciled say, within the Bahamas. The Bahamas is especially nicely suited in that underneath native legislation, insurance coverage is expressly exempt from the claims of collectors, supplied that premium(s) used to fund the coverage are usually not topic to any prior declare on the time of switch.

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