Page 34 - MetalForming January 2010

Irv Blackman, CPA and lawyer, is a retired founding partner of Blackman Kallick Bartelstein, LLP and chairman emeritus of the New Century Bank (both in Chicago). Want to consult? Need a second opinion? Contact Irv:
Blackman, Kallick, Bartelstein 10 S. Riverside Plaza, Ste. 900 Chicago, IL 60606
phone: 847/674-5295
e-mail:
Blackman@EstateTaxSecrets.com www.taxsecretsofthewealthy.com
This article continues my quest to lead the education parade for my readers in the areas of “How to make it” and “How to keep it.” Today’s subject matter—a little-known strategy—goes to the head of the class not only as 1) a star income tax saver, but also 2) an estate tax destroyer and 3) a superior asset protection device.
Yes, there is a single strategy that does all three. What is it? Private place- ment life insurance (PPLI). If you are fortunate enough to consider yourself an affluent individual, you’ll love every word you are about to read.
Who falls into the affluent category? Well, the most recent IRS data available (for 2007) shows the top 1 percent of taxpayers (earned $410,000 or higher) paid a whopping 40.4 percent of all federal income taxes. Astounding, because those taxpayers made only 22.8 percent of the reported adjusted gross income for 2007.
In my book, this 1 percent group really deserves a tax break. Note: Now more than ever, because the elected Washington geniuses are a sure bet to raise the income-tax rates on upper income earners.
Now, what is PPLI? It is a form of variable universal life insur- ance offered privately, rather than through a public offering. Vari- able life insurance has cash value dependent on the performance of one or more invest- ment accounts in the policy. Since the insurance company cannot know the spe-
cific investment goals of each tradi- tional policy purchaser, the carrier often settles for registering a set offering, including a selection of mutual funds or hedge funds as investment options with- in the policy. On the other hand, the carrier customizes the investment options to meet the needs of each PPLI owner/investor.
The prime purpose of PPLI is to make your investment profits (whether capital gains, dividend income or inter- est income) tax-free. Simply put, all policy investments are wrapped in a tax-free insurance envelope.
Just how significant are the wealth accumulation results of taxable vs. tax- free? The following example (created by Lewis Schiff, an Austin, TX lawyer) will astound you.
Facts: A PPLI policy insures a 45-yr.- old male paying $2.5 million in premi- ums for 5 years (a total of $12.5 mil- lion). The assumed rate of return is 10 percent (net of investment-manage- ment fees), taxed as ordinary income (at 40 percent, including federal and state taxes).
The table below provides the results, in $ millions (rounded):
BLACKMAN ON TAXES IRVING BLACKMAN
An Easy Way to Maximize Your Investment Income...Private Placement Life Insurance
PPLI
End of Year
Taxable Investment
Cash Value
Death Benefit
1
$2.650
$2.665
$43.900
5
12.288
13.351
43.900
10
16.445
20.508
43.900
20
29.450
50.071
61.087
30
52.740
125.095
133.851
40
94.449
312.915
328.560
32 METALFORMING / JANUARY 2010
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