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The Journal of Wealth Management

The Journal of Wealth Management

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Primary Article

Can Private Placement Life Insurance Still Be Used as a Tax Efficient Vehicle to Invest in Tax Inefficient Hedge Funds?

Janie Casello Bouges and Hossein B Kazemi
The Journal of Wealth Management Winter 2005, 8 (3) 99-103; DOI: https://doi.org/10.3905/jwm.2005.598426
Janie Casello Bouges
An assistant professor of accounting at the College of Management, University of Massachusetts Lowell, Lowell, MA. jcbouges@charter.net
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Hossein B Kazemi
An associate professor of finance at the Isenberg School of Management, University of Massachusetts Amherst, Amherst, MA. kazemi@som.umass.edu
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Abstract

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.

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The Journal of Wealth Management
Vol. 8, Issue 3
Winter 2005
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Can Private Placement Life Insurance Still Be Used as a Tax Efficient Vehicle to Invest in Tax Inefficient Hedge Funds?
Janie Casello Bouges, Hossein B Kazemi
The Journal of Wealth Management Oct 2005, 8 (3) 99-103; DOI: 10.3905/jwm.2005.598426

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Can Private Placement Life Insurance Still Be Used as a Tax Efficient Vehicle to Invest in Tax Inefficient Hedge Funds?
Janie Casello Bouges, Hossein B Kazemi
The Journal of Wealth Management Oct 2005, 8 (3) 99-103; DOI: 10.3905/jwm.2005.598426
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  • Investment Implications of the Estate Tax
  • Wealth Management
  • The Three Forms of Governance
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