MONEY


Leave Money to Your Heirs — Tax-Free


Little-known investment vehicle merges hedge funds with life insurance to escape inheritance taxes. ::


BY JULIE CRAWSHAW T


axes are usually enemy No. 1 when doing estate planning, but there is a little-known way to avoid,


or at least minimize, the burden Uncle Sam will place on your heirs. Private placement variable life


insurance (PPVLI) allows investors to leave investments such as hedge funds, which are usually taxed at the 35 percent rate, to their heirs tax free. Here’s how PPVLI works.


Insurance companies invest in dedicated funds, which are managed


74 NEWSMAX MAXLIFE | MARCH 2015


by investment advisers on behalf of the policyholder. Those funds can contain hedge


funds, as well as other lucrative investment products, that are normally taxed at 35 percent. Unlike straight life insurance,


PPVLI returns are variable, so there’s no guarantee of how much money beneficiaries will receive. Policyholders take on investing risk in lieu of a guarantee and exert no influence over the investment decisions of the fund. “What makes this so appealing is that it’s a huge


tax play,” says Jonathan M. Bergman, CFP, managing director of TAG Associates LLC. “If you’re buying tax-inefficient investments, you could be paying 50 percent or more of your gains in income taxes if you live in a high-tax state such as New York or California. This is a way to alleviate that burden and have the money compound tax free.”


HEDGE FUND ADVANTAGE David Y. Choi, a trusts and estates


partner at Kurzman Eisenberg Corbin & Lever, concurs. “PPVLI is really hedge fund investments wrapped in a life insurance coating that allows the investment to grow without having to pay income or capital gains tax,” he says. “Hedge fund investing can be a


terrific source for wealth-building, but in the current tax regime, investors are taxed both along the way and at the end — and, of course,


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