By placing tax-inefficient investments within a tax-free wrapper like PPLI and taking their money out via tax-free loans, UHNW clients can improve after-tax returns by nearly 300 basis points or more over the long-term compared to investing those assets within a...
Protecting the client from an estate tax liability only to expose them to a larger tax-drag and income tax liability, can pose more harm than good.
The best way to maximize the value of a GRAT is to utilize the GRAT for assets that are tax-inefficient. This holistic estate and investment approach can be improved further by utilizing the GRAT as a vehicle to invest in private placement life insurance (PPLI) which allows the assets to compound without the tax drag. Doing so essentially turns the tax-inefficient assets into tax-efficient assets by providing the client with the benefits of tax-free growth as well as step-up in basis that would be lost if the client only used the GRAT by itself.
RIAs can utilize PPLI to shelter otherwise tax-inefficient assets from income and estate taxation.