Private Placement Variable Annuities (PPVA)

Private Placement Variable Annuities (PPVA) provide the periodic income of a traditional annuity combined with tax deferred growth on an unlimited universe of investments including hedge funds and other alternative investments. The insurance company creates separate tax-deferred accounts for your chosen investment advisor to invest at their discretion.

The steps of a PPVA Strategy, as shown in the diagram above:

1. The Annuitant (parents) purchase a PPVA.
2. The Insurance Company pays Annuitant an annuity.
3. The Insurance Company places your payment into the PPVA's IBC separate account.
4. Your selected Investment Advisor makes investment decisions
5. On death your beneficiaries receive the money remaining in your PPVA.

PPVAs are valuable for the elderly, the retired, the uninsurable and families with charitable intentions. They offer a way to participate in hedge funds and other alternative investments with deferred taxation. You can make deposits and receive income from your PPVA. Your advisor can adjust PPVA allocations among investment options and you can change the beneficiary designation at any time.

Retirement

PPVAs are especially beneficial for you if you intend to retire to a lower-tax state. You can defer the income tax on your investment gains until you've relocated, at which time you would take distributions and pay a lower effective tax rate.

Charitable Giving

Charitable Remainder Trust (CRTs) and Charitable Lead Trusts (CLTs) require assets to be gifted irrevocably in exchange for a current tax deduction. The PPVA allows charitably inclined individuals to maintain ownership and control of PPVA assets throughout their lifetime while deferring taxation on the investment gains within those assets. If a charity is designated as a beneficiary at the time of your death, assets are passed to that charity tax-free.

PPVA Or PPLI?

PPVA contracts may be a more appropriate vehicle than PPLI for those averse to the medical and financial disclosures required in the PPLI underwriting process. The PPVA process is simpler, and its cost structure is less than a PPLI since there is no life insurance cost. The downside is that assets passed to beneficiaries at death are taxed as ordinary income.

If clients aren’t ready to part with assets permanently, they could place them into a PPVA, where they grow tax-deferred and accumulate faster than if exposed to taxes. The donor can access cash but cannot borrow cash tax-free as with A PPLI. At death, if a private foundation or charity is designated as the beneficiary, deferred gains become exempt from income tax and the PPVA will not be subject to estate tax. This constitutes a tax-efficient means of giving assets away without losing control during one’s lifetime.

Contact us to discuss implementing a Private Placement Variable Annuity strategy today