Frozen Cash Value Life Insurance - A sophisticated tax planning solution for ultra-high-net-worth taxpayers

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Originally published in Trusts & Estates/Wealthmanagement.com - July 2012.

Frozen cash value (FCV) is best known as a private placement flexible premium variable adjustable (universal) life insurance policy that’s issued by offshore life insurance companies domiciled in tax-haven jurisdictions such as Bermuda or the Cayman Islands. In 1995, when Craig Hampton developed FCV insurance, the private placement life insurance (PPLI) industry for high-net-worth individuals was in its infancy. Awareness among client advisors was missing. The passage of time and growth of the PPLI industry for FCV life insurance has increased awareness of the product. However, it’s virtually unknown by tax attorneys and CPAs, as well as life insurance agents with wealthy clients. The evolving tax landscape suggests that FCV is a planning tool that should be considered as part of integrated income and estate tax planning.

Future Landscape -

The future tax landscape is clouded with problems for high-income and net-worth taxpayers. The expiration of the Bush tax cuts at the end of 2012, before any actual tax reform, will result in an immediate tax increase for high-net-worth investors. The top marginal tax bracket will increase to 39.6 percent. The addition of the new Medicare tax on unearned income for married taxpayers with adjusted gross income in excess of $250,000 will increase this to 43.4 percent. The phase out of itemized deductions will increase the effective tax rate by 1 percent to 2 percent.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Gerald Nowotny, Law Office of Gerald R. Nowotny | Attorney Advertising

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