Wealth transfer is not just about passing assets down — it’s about creating a sustainable legacy. At TRC Financial, we specialize in strategies that maximize wealth for future generations while minimizing tax exposure. One of the most powerful tools we offer is our proprietary Private Placement Life Insurance (PPLI) solution, designed to provide tax-free annual distributions to trust beneficiaries. This allows generation one to provide children and grandchildren with annual cash flow from the policy versus having to wait until the passing of generation one.
The Power of Private Placement Life Insurance
Private Placement Life Insurance (PPLI) is a flexible, high-net-worth solution that combines life insurance protection with a tax-advantaged investment platform. Unlike traditional life insurance, PPLI allows policyholders to invest in a wide range of assets while enjoying the benefits of tax-free growth and tax-free distributions to beneficiaries.
How the Strategy Works
Generation One (G1): The Wealth Creators
The strategy begins with Generation One (G1) purchasing a PPLI policy. G1 (or G2) is the insured, and the life insurance policy is owned by a trust, allowing for seamless integration into estate and wealth planning. The cash value of the policy grows tax-deferred or tax-free if held until death, with investments tailored to meet the trust’s objectives.
Tax-Free Annual Distributions
Once the policy has completed premium payments (typically by year 5) or before, the trust begins to take tax-free loans from the policy equal to 50% of investment earnings within the policy. These earnings are distributed annually to trust beneficiaries, providing them with steady, tax-free income during the life of G1.
Generation Two (G2) and/or Three (G3): Legacy Beneficiaries
While Generation One (G1) is alive, annual tax-free cash flow is distributed from the policy to trust beneficiaries. Upon the passing of G1, the PPLI policy pays out a substantial death benefit to the trust, free of income tax and net of the outstanding policy loan. This ensures that Generation Two (G2) and Generation Three (G3) receive a significant influx of wealth, which can be reinvested or used to fund estate settlement expenses, perpetuating the cycle of wealth.
Why Choose Private Placement Life Insurance (PPLI) for Wealth Transfer?
Tax Efficiency: Policy distributions and death benefits are tax-free, preserving more wealth for beneficiaries.
Investment Flexibility: Access to a broad range of investment options, from traditional securities to alternative assets with the ability to reallocate at any time without triggering tax on gains.
Estate Planning: PPLI policies are often held in irrevocable trusts, shielding the death benefit from estate taxes.
Creditor Protection: Assets within the PPLI and owned by a trust are generally protected from creditors, adding an extra layer of security.
Example in Action
Consider a family patriarch who gifts $10 million into a PPLI policy for the benefit of his three children. Let’s take a look at a hypothetical example of how the policy distributes annual cash to the children and ultimately transfers the death benefit upon his death.
$2,000,000 in annual premium paid for 5 years ($10M gift to the trust)
Net premiums are invested per the investment strategy of the trust
Assumes an average earnings of 7%
Policy Loans taken each year equal to 3.50% of $10,000,000 and distributed tax-free to the trust beneficiaries ($350,000 per year)
No 1099 or K1 on any trust earnings as the life insurance policy is not subject to tax
Death benefit, less the policy loan balance, is paid upon the death of the family patriarch tax-free to the trust beneficiaries
Assuming death of the insured (G1) at age 94 Total cash flow to trust beneficiaries = $74,173,438 IRR to trust = 6.44% (on 7% earnings) Pre-tax equivalent IRR @ 35% tax rate = 9.91%
Insured age 55 with a preferred non-smoker underwriting class. The actual performance will depend on product costs, underwriting results, actual investment earnings, and other insurance product pricing assumptions. This is not an offer to sell a security or insurance product. Values are not guaranteed.
Policy loan terms are contractual at the following interest rates:
Loan Interest Rate Charged on Policy Debt:
2.20% from policy year 1 thru 10; 2.00% from policy 11+
Rate Credited to Loan Account: 2.00%
Summary of Hypothetical Illustration (assuming death at age 94)
$10,000,000 in Total Premiums Gifted
$12,250,000 distributed to trust beneficiaries during the insured’s (G1) lifetime
$61,923,438 paid tax-free to the trust beneficiaries upon the death of the insured (G1)
Total cash flow to trust beneficiaries = $74,173,438
TRC Financial: Your Partner in Legacy Planning
At TRC Financial, we understand the complexities of wealth transfer and estate planning. Our experience and access through M Financial to the Magnastar proprietary PPLI product, allows us to tailor the life insurance policy to meet the needs of affluent families, ensuring that your legacy endures across generations.
Ready to preserve and transfer your wealth for future generations? Contact us today to learn how our unique PPLI strategy can work for your family.
The information is for informational purposes only and is not intended as a solicitation. This material should not be construed as legal or tax advice and is not intended to replace the advice of a qualified attorney or tax advisor.
PPLI is exclusively available to Accredited Investors (net worth exceeding $1,000,000 or an annual income of over $200,000 for the last 2 years) and Qualified Purchasers (individuals with a minimum of $5,000,000 of investable assets).
Private Placement Life Insurance is an unregistered securities product and is not subject to the same regulatory requirements as registered variable products. As such, Private Placement Life Insurance should only be presented to accredited investors or qualified purchasers as described by the Securities Act of 1933.
Securities offered through M Holdings Securities, Inc. A Registered Broker/Dealer, FINRA / SIPC. TRC Financial is independently owned and operate. 7415002.1
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