Bloomberg, The Very Rich Already Have a Plan to Escape Biden’s Tax Increase: Private Placement Life Insurance:
Wealthy Americans are scrambling for places to hide from plans by Democrats to hike their taxes. Many on Wall Street think they’ve found just the thing.
A niche strategy called private placement life insurance, or PPLI, was already gaining popularity among the very rich for its ability to shield fortunes from taxes. Now some advisers to the top 0.1% say it’s dominating conversations with their clients.
The threat of higher taxes — what President Biden calls making billionaires and millionaires pay their “fair share” — isn’t the only factor sparking interest in PPLI. A little-noticed change in U.S. insurance law at the end of 2020 makes the tool more powerful, at the same time that competition among insurance carriers and advisory firms is giving rich investors more flexibility, lower costs and a wider choice of products on PPLI platforms.
As long as assets are held in a PPLI policy, they escape taxes. When a policyholder dies, heirs inherit the PPLI’s contents tax-free. Those perks strike at the heart of Biden’s plans to get the very wealthy to pay more taxes on their investments, especially on capital gains that currently aren’t levied if assets are held until death.
“Private placement life insurance poses a serious obstacle to President Biden’s goal of guaranteeing that high-income individuals pay tax on large gains at least once per lifetime,” said Daniel Hemel, a law professor at University of Chicago, who’s been talking with Democrats in Washington about ways to limit the strategy. “PPLI is a massive loophole — entirely legal, easy to exploit, and politically very hard to close.” …
Hemel, of the University of Chicago, said one option to stop the wealthy from using PPLI to escape taxes is to cap the size of life-insurance death benefits. Another is to write stricter IRS regulations, perhaps further limiting the control that policyholders are allowed to have over investment choices.
Otherwise, Hemel has warned other tax policy experts, PPLI is a “relatively easy workaround that will allow high-net-worth individuals to generate virtually unlimited amounts of investment income while avoiding capital gains taxes during life and at death.”
