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Chairman's Information | Newsroom | The USA Senate Committee on Finance – Listening to | Hearings | The USA Senate Committee on Finance

Ashley Schapitl
Washington, D.C. – Senate Finance Committee Chair Ron Wyden, D-Ore., today launched an investigation into the growing use of private placement life insurance by the wealthiest Americans to avoid and evade taxes. Wyden began the investigation with a letter to Lombard International, a subsidiary of private equity giant Blackstone.
Wyden wrote, “Lombard International (Lombard) is one of the market leaders in the PPLI industry and has described PPLI as a ‘core element of effective long-term wealth structuring strategies for many wealthy individuals and families.’ Lombard markets PPLI policies as a means to invest in hedge funds, private equity funds, and other financial products while avoiding income and estate taxes. According to Lombard’s marketing materials, a properly designed PPLI policy can be used to ‘minimize or eliminate estate taxes’ and ‘defer or potentially eliminate income tax or any tax reporting associated with investment activities.’”
Stuart Parkinson
Chief Executive Officer
Lombard International
One Liberty Place
1650 Market Place, 54th floor
Philadelphia, PA 19103
 
Dear Mr. Parkinson,
I write seeking information regarding the growing use of Private Placement Life Insurance (PPLI) policies as a tax shelter for the wealthiest Americans. I am concerned that these insurance vehicles are being used without a genuine insurance purpose to invest in hedge funds and other investments while avoiding billions of dollars in federal taxes.
According to public reports, the bare minimum required to invest in a PPLI policy is $2 million.[1] However, experts in the field indicate that it is much more common for investors to devote at least $5 million for the strategy to be worthwhile.[2] By definition, these policies are only available to the wealthiest 1 percent of Americans and offer a myriad of tax advantages not available to most working Americans.
Lombard International (Lombard) is one of the market leaders in the PPLI industry and has described PPLI as a “core element of effective long-term wealth structuring strategies for many wealthy individuals and families.”[3] Lombard markets PPLI policies as a means to invest in hedge funds, private equity funds, and other financial products while avoiding income and estate taxes. According to Lombard’s marketing materials, a properly designed PPLI policy can be used to “minimize or eliminate estate taxes” and “defer or potentially eliminate income tax or any tax reporting associated with investment activities.”[4] Lombard has also indicated that it expects PPLI would increase in importance if Congress were to eliminate the “stepped up basis” loophole used by the wealthiest households to transfer assets to their heirs tax-free.[5] Lombard in a press release pointed out that a PPLI policy effectively replicates a basis step-up on unrealized gains through a tax-free insurance death benefit paid to beneficiaries.[6]
In addition to concerns PPLI policies are being promoted as a tax shelter, recent investigations by the U.S. Department of Justice have raised concerns regarding the involvement of PPLI policies in carrying out various offshore tax evasion schemes. Last April, Switzerland’s largest insurance company, Swiss Life, pleaded guilty to using PPLI policies and related investment accounts as “insurance wrappers” to help thousands of U.S. taxpayers’ to conceal their ownership of assets offshore and evade paying U.S. taxes.[7]
            Though the size of the PPLI market is difficult to determine, it appears that these policies and related insurance company separate accounts are now worth at least tens of billions of dollars and are proliferating rapidly among ultra-high net worth individuals. Lombard’s overall assets under administration have grown from $55 billion in 2020 to over $67 billion today.[8] It is unclear exactly how much of Lombard’s assets under administration are PPLI policies and related insurance company separate accounts, though reports suggest that Lombard “dominates the market.”[9] Lombard clients reportedly placed over $3 billion in new PPLI policies between 2017 and 2018 alone after Lombard worked with several large banks to market the product to wealthy clients.[10]
As Chairman of the Senate Finance Committee, I am conducting an investigation into the use of PPLI policies and other loopholes exploited by the wealthiest 1 percent of Americans to avoid paying their fair share in taxes. In order to better understand how Lombard may be assisting millionaires and billionaires minimize or eliminate taxes on investment income, please answer the following questions no later than August 31,, 2022:
 
Thank you for your attention to this important matter.
###
 
[1]The Very Rich Already Have a Plan to Escape Biden’s Tax Increase, Bloomberg, Sep. 2, 2021,  https://www.bloomberg.com/news/articles/2021-09-02/richest-americans-have-tax-loophole-that-s-legal-easy-to-exploit-hard-to-close#xj4y7vzkg
[2] Id.
[3] Biden’s proposed tax plan would increase importance of insurance and annuities in tax planning, Lombard International, Oct. 29, 2020, https://us.lombardinternational.com/en-US/Newsroom/Corporate-news/News-2020/Biden%E2%80%99s-Proposed-Tax-Plan-Would-Increase-Impor-(1)
[4]Private Placement Life Insurance and Split Dollar, Lombard International, Mar. 13, 2018, https://us.lombardinternational.com/en-US/Newsroom/Corporate-news/News-2018/PPLI-and-Split-Dollar
[5] Biden’s proposed tax plan would increase importance of insurance and annuities in tax planning, Lombard International, Oct. 29, 2020, https://us.lombardinternational.com/en-US/Newsroom/Corporate-news/News-2020/Biden%E2%80%99s-Proposed-Tax-Plan-Would-Increase-Impor-(1)
[6] Id.
[7]Switzerland’s Largest Insurance Company and Three Subsidiaries Admit to Conspiring with U.S. Taxpayers to Hide Assets and Income in Offshore Accounts, U.S. Department of Justice, May 14, 2021,  https://www.justice.gov/opa/pr/switzerland-s-largest-insurance-company-and-three-subsidiaries-admit-conspiring-us-taxpayers
[8] Lombard International reaches an all-time high of assets in 2019, Private Banker International, Mar. 9, 2020, https://www.privatebankerinternational.com/news/lombard-international-assets-2019/; Lombard International, https://us.lombardinternational.com/ (home page)
[9] The Very Rich Already Have a Plan to Escape Biden’s Tax Increase, Bloomberg, Sep. 2, 2021,  https://www.bloomberg.com/news/articles/2021-09-02/richest-americans-have-tax-loophole-that-s-legal-easy-to-exploit-hard-to-close#xj4y7vzkg
[10]Blackstone woos wealthy with tax-free hedge fund, InvestmentNews, May 31, 2018,  https://www.investmentnews.com/blackstone-woos-wealthy-with-tax-free-hedge-fund-2-74407

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