Utilizing Private Placement Life Insurance in Estate Planning

As we proceed into 2021 and emerge from the COVID-19 pandemic, many fundamental aspects of daily living have been challenged. Among many lessons people learned from the pandemic, one of the most critical ones is the importance of asset protection. Private placement life insurance provides individuals with the opportunity to allocate alternative investments in a tax-efficient manner while creating efficient strategies that do not exist with other life insurance options. Various factors make it an ideal time to consider using private placement life insurance including high lifetime exemptions and attractive federal estate and income tax rates. This article reviews some critical details that you should consider about deciding whether private placement life insurance is right for you.


 How Private Placement Life Insurance Functions


Private placement life insurance trusts are a special type of life insurance that has a high cash value compared to a low death benefit. To minimize fees, the life insurance aspect is kept as affordable as possible, which permits the cash value of the policy to drive death benefits. The purpose behind private placement life insurance trusts is to amass a substantial cash value within a life insurance policy to take advantage of the tax-free handling of income as well as gains from the underlying investments in the policy. 


Who Benefits Most from Private Placement Life Insurance


Life insurance offers various tax benefits, which can be a critical consideration for people in the higher tax brackets. While standard life insurance policies do not address various investor instruments, private placement life insurance allows wealthier individuals the opportunity to create their own life insurance contracts. This combines the benefits of highly taxed hedge funds and similar investments with the tax advantages of life insurance. 


Appreciating the Tax Implications of Private Placement Life Insurance


One of the most nuanced aspects of private placement life insurance is that it comes with various tax nuances. Some tax issues about private placement life insurance that it’s important to understand include: 


  • Assets placed within the bounds of private placement life insurance grow tax-deferred
  • Inside a private placement insurance policy, a person can transfer assets from one asset class to another without being subject to any significant capital gains consequences
  • A proper structure makes sure that a person can access the cash value located in a private placement life insurance policy without being subject to taxes. 
  • At the time of the policy owner’s death, both the policy value and the actual life insurance death coverage might transfer to beneficiaries without being subject to taxation.


The Advantages Provided by Private Placement Life Insurance


For the right type of individual, private placement life insurance offers several substantial benefits, which include the following:


  • No surrender charges are involved with these policies
  • Ongoing fees and premiums are lower than with other policies 
  • These policies offer the potential to borrow against the cash value of the policy without being subject to taxes


Contact a Knowledgeable Estate Planning Attorney

The estate planning process can be particularly complex. If you or your loved one needs the assistance of an experienced estate planning attorney, you should not hesitate to contact Ettinger Law Firm today.

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