International estate planning is a process that not only helps protect your estate and minimize your tax liability. It is particularly important for those who have capital in different countries or who wish to pass assets to certain heirs regardless of their country of residence.
The main tasks that international inheritance planning should address:
- Estate Protection: Selecting jurisdiction, tools, and establishing a structure to protect the estate and the interests of heirs.
- Minimizing tax liabilities: Using legislative tools and strategies to minimize tax payments on transferred capital.
- Conflict Resolution: Preventing and resolving conflicts between heirs and other interested parties.
- Estate Administration: The administration and distribution of the estate in accordance with the wishes of the testator.
- Counseling: The possibility of legal and financial assistance for heirs.
Solution
Insurance (PPLI) policies have proven themselves in a number of countries as an effective way to provide capital for the future generation.
Bloomberg writes:
“As long as the assets are in a PPLI policy, they are not taxable.
https://bloomberg.com/news/articles/2021-09-02/richest-americans-have-tax-loophole-that-s-legal-easy-to-exploit-hard-to-close
When the policyholder dies, the beneficiaries inherit the contents of the PPLI tax-free.”
PPLI (Private Placement Life Insurance) is an investment vehicle that combines the features of an investment product and life insurance. It provides several advantages for investors:
- Confidentiality: PPLI can be used to maintain the confidentiality of the investment, the owner and the inheritance process, which can be useful to protect against unwanted publication of information about beneficiaries and inherited assets.
- Legal Protection: A PPLI policy provides full protection of assets against the claims of any third party (business partners, spouses, other parties to legal disputes).
- Investor-level taxation: Unlike many other inheritance methods, PPLI is not taxed at the investor level, which preserves more of the investment for heirs.
- Inheritance level taxation: there is no inheritance tax on PPLI as it is a life insurance policy. Например, налог на наследство в США и Великобритании достигает 40%.
- Flexibility in investment planning: PPLI can be customized to optimize taxation and achieve heirs’ investment goals.
- International availability: PPLI can be used to inherit assets in various jurisdictions.
- Inheritance targeting: PPLI allows for the realization of targeted transfer of assets and has an accelerated inheritance process. The heirs named in the policy will receive 101% of the current value of the assets within 14 days of the policy owner’s death.
Case
Let’s look at an example of applying PPLI to optimize inheritance tax.
Problem
In many popular jurisdictions, this tax is levied not only on residents but also on non-residents (e.g. a Russian businessman living in Russia and having a foreign account).
In the US and UK it is 40% on amounts over 60K USD and 325K GBP respectively. This tax is levied on all assets (bank, brokerage accounts, real estate, etc.) located in the jurisdiction.
Because of these high taxes, both residents and non-residents of these countries structure their capital in advance.
Solution
The most popular solutions are trusts and insurance products. The former are most often used for structuring capital over 5M USD, the latter for capital between 100K and 5M. It is possible to include all financial assets, real estate, business interests, art collections, etc. in PPLI. Inheritance tax for both residents and non-residents will not apply, the payout to heirs will be 101% of the assets.
Experts estimate that the volume of Russian capital (bank and brokerage accounts, real estate, etc.) abroad amounts to about USD 2 trillion (!) and now the active process of its inheritance is beginning.