RT Journal Article
SR Electronic
T1 Can Private Placement Life Insurance Still Be Used as a Tax Efficient Vehicle to Invest in Tax Inefficient Hedge Funds?
JF The Journal of Wealth Management
FD Institutional Investor Journals
SP 99
OP 103
DO 10.3905/jwm.2005.598426
VO 8
IS 3
A1 Janie Casello Bouges
A1 Hossein B Kazemi
YR 2005
UL https://pm-research.com/content/8/3/99.abstract
AB Private placement life insurance (PPLI) policies are custom-written life insurance or annuity contracts that receive the preferential tax treatment afforded most life insurance products. This tax-free status, as well as the owner's ability to designate an investment manager, has made PPLIs an attractive way to invest in traditionally tax-inefficient assets such as hedge funds. The Internal Revenue Service, however, disapproves when variable annuity or life insurance contracts are used primarily as investment vehicles and has shown its displeasure in the form of lawsuits and rule revisions that attempt to end the practice. In 2005, the IRS struck down a key provision of the internal revenue code that allowed investors to gain exposure to hedge funds through PPLIs. This raised the question of whether PPLIs are still a viable way for investors to gain tax-preferred exposure to hedge funds. The article explores this question and concludes that PPLIs can, with limitations, still be used to gain tax-preferred exposure to hedge funds.