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Death Benefit and Estate Planning Applications

While, unlike typical life insurance, Private Placement Life Insurance is not used primarily for the death benefit, the advantages of the death benefit component should not be overlooked. As an estate planning tool, Private Placement Life Insurance can mitigate estate tax liabilities while facilitating the orderly disposition of assets at death. When structured properly, the entire death benefit of a Private Placement Insurance Policy passes to the client’s beneficiaries free of federal income tax and federal estate tax.

The death benefit of a Private Placement Life Insurance Policy provides significant liquidity upon the client’s death, eliminating the need to liquidate family assets to pay estate tax liabilities. In addition, the death benefit may be used to meet the client’s philanthropic goals.

In the international estate planning space, Private Placement Insurance can be an extremely powerful tool in stemming the Undistributed Net Income problem in Foreign Non-grantor Trusts with U.S. beneficiaries. The punitive taxation of Undistributed Net Income is sometimes referred to as a “throwback tax” and is designed to tax the distribution of assets as though it was taxed in the year the income was received in the trust. The longer the income remains in the trust the larger the compounded interest and fees that will be charged. A Private Placement Insurance Policy can be used to cut off the accumulation of taxable income and transfer it to a tax favored environment.