Sep 1, 2005 12:00 PM

By Charles L. Ratner, national director of personal insurance counseling, Ernst & Young LLP, Clevela

Cash value life insurance — through its tax-deferred growth of the cash value, tax-free access to that cash value and a tax-free death benefit — can provide tax-sensitive investors with benefits that include income tax deferral, conversion and diversification. These benefits can enable life insurance to compare favorably with other forms of investment that generate significant taxable income annually and upon disposition. But of course, the astute investor making that comparison has to be convinced that the favorable tax characteristics of the life policy overcome its inherent frictional costs.

Any type of cash value product can generate these benefits. Indeed, some of the most financially savvy clients I've worked with, including some hedge fund investors, have eschewed the more obvious choices of variable universal life (VUL) and private placement variable universal life (PPVUL) in favor of a well-constructed whole life/term blend or universal life product in which a carrier controls the investments. They thought so much of the way certain carriers invested that they viewed the general accounts as a worthy component of their asset allocation. The focus here, however, is on VUL and PPVUL. That's because recent pronouncements from the Treasury Department and the Internal Revenue Service have resolved some, albeit not all, of the technical issues that have troubled some purchasers of PPVUL; the government has also shed more light on where conservative practice ends and brinksmanship begins. These pronouncements make it timely to revisit PPVUL, which can offer the high-net-worth client an attractive, tax-efficient way to invest in tax-inefficient products. Estate planners need to understand how these products work, where they are most appropriate, and how planners can work with agents through the due care process.

Topics of Interest

Estate Tax	Donor Advised Funds
GSTs	Family Offices
Private Foundations	Life Insurance
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Topics of Interest

Estate Tax	Donor Advised Funds
GSTs	Family Offices
Private Foundations	Life Insurance
2010 Tax Act News	Industry Trends Surveys

E-Newsletter Signup

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