Thank you to The Madison Group for this M Financial Whitepaper

Many family businesses and multigenerational businesses use private placement insurance. This article may help those businesses to understand private placement insurance better.

This White Paper is to provide you with insight into why Private Placement Life Insurance (PPLI) is one of the fastest-growing tax/investment strategies today. PPLI and its cousin Private Placement Variable Annuities (PPVA) have been around for 20 years but are now an overnight success.

Factors contributing to recent popularity are:

  1. Higher income taxation due to loss of the state income tax deduction and the specter of increased income taxation on the horizon.
  2. A 25-year effort to build a robust menu of traditional and alternative investments available through the PPLI and PPVA platforms. Now with over 400 choices and the ability to add Separate Managed Accounts (SMA’S) the investment options are now sufficient for the most sophisticated investors.
  3. The massive transfer of wealth due to the historically high estate tax exemption and low interest rates has resulted in multi-generational grantor trust with significant income either taxed to the grantor or if a non-grantor trust taxed at the highest income tax rate (currently 37%) over $12,500 and a flat tax of $3,011.50. All grantor trusts become non-grantor trusts upon the death of the grantor. These factors are driving many trustees to seek strategies to increase income tax efficient investing.
  4. In the search for income generating investments, credit managed funds (e.g., Golub, Oak Tree) have become popular. These funds have relatively high predictable yield but are subject to ordinary income tax rates. Clones of these funds are on the PPLI/PPVA platform, allowing investors to effectively increase the after-tax yield without altering the investment return or risk profile.
  5. The 2020 Tax Act significantly enhanced the economics of PPLI by reducing the amount of life insurance required.

About The Madison Group
The Madison Group is one of the largest independent financial firms in the U.S. dedicated to comprehensive wealth preservation since 1968. We specialize in providing affluent families, business owners and executives with unique, tax-efficient wealth transfer and business continuity strategies. We value solutions that have simplicity at their heart and are manageable across generations.

Policy and Taxation Group is your voice in Washington on economic freedom. We advocate for policies that allow American families to fully enjoy the economic liberties and benefits of a robust free market unique to our nation. For over 25 years, we have been the loudest voice in the nation’s capital on eliminating the death tax. This ill-conceived tax has a destructive impact on families, family businesses, job creation, and the national economy.

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