The IRS looks as if it's about to go after wealthy investors who tried to put assets they really control inside private placement life insurance policies, according to a life insurance distribution veteran.
Larry Rybka, CEO of Valmark, said, in an email interview, that any wealth advisors, life insurance agents or others who have helped high-net-worth clients put the stock of private companies or the similar types of assets inside PPLI arrangements should be paying close attention to any messages about PPLI coming from Senate Finance Committee Chair Ron Wyden, D-Ore.
Wyden has asked Lombard International, Prudential Financial, Zurich and the American Council of Life Insurers for information about the PPLI market.
"These data requests will show those that have been aggressive with the investor control line will find themselves at the center of focus, especially when the IRS is hiring 87,000 more auditors," Rybka said in an email interview.
Rybka may be best known as a leader of the fight to stop life insurers and life insurance producers from using what he believes to be misleading illustrations of how indexed life insurance products might perform.
What It Means
Advisors who have helped clients set up existing PPLI arrangements should be reviewing their records and talking to their compliance advisors.
Advisors who have clients with PPLI arrangements set up by other financial or legal professionals may need to help those clients explore their options.
For high-net-worth clients who are setting up life insurance and other financial arrangements now, advisors may want to think carefully about how to set up PPLI arrangements that can stand up to increased IRS scrutiny, or about identifying alternatives to PPLI arrangements.
Private Placement Life Insurance
A private placement life insurance arrangement may give a wealthy individual or family a way to set up a big, customized cash-value life insurance policy.
A PPLI policy might have lower administrative costs than an ordinary life insurance policy, and it might offer freedom from policy size limits and other constraints that might face a wealthy client who wants a very high level of death benefits.
