Rich Hide Assets in Tax-Free Life Insurance Policies

Offshore life insurance policies have become a tool for wealthy individuals to hold assets such as yachts, artwork, and Bitcoin tax-free. These private-placement policies allow investors to put unlimited amounts of money into a customizable insurance contract that grows tax-free. The idea is that the assets inside the policy can generate high returns while avoiding hefty annual tax bills.

Typically, these policies are used for hedge funds, private credit, and private real estate investments. According to Jim White, founder of Great Oak Wealth Management, PPLI is 'a Roth IRA on steroids' for those who can afford it and want to leave the assets to their heirs.

The entry bar for this type of policy is high, with investors needing at least $1 million in investible assets or $5 million as qualified purchasers. The policies also come with fees ranging from 2% to 4% annually in the early years, requiring a funding amount of around $5 million in premiums.

However, offshore carriers have been accused of bending the rules by allowing yachts, artwork, and bitcoin into policies alongside closely held business stakes. This practice raises concerns about the investor-control doctrine and diversification requirements set by the IRS.

Michael Fontanini, senior vice president at Lion Street, expressed skepticism about these transactions, stating that 'the juice isn't worth the squeeze.' He also emphasized that investors cannot directly control the assets inside the policy, citing the example of an adviser being unable to sell Apple and buy Google on their behalf.