Insurance Curator Private Placement Life Insurance (PPLI) is a powerful estate planning tool for high-net-worth (HNW) U.S. families who wish to hold illiquid alternatives (private equity, direct real estate, venture stakes, hedge funds) inside a tax-efficient insurance wrapper. This case study explains how PPLI can be structured to (1) reduce U.S. federal estate tax exposure, (2) preserve illiquid holdings without forced sales, and (3) lower lifetime tax-drags on growth — with practical cost, provider and jurisdiction considerations for clients based in New York, California, Florida, and Texas.
Why illiquid alternatives create estate planning friction
- Illiquid assets are hard to value and sell quickly — forcing liquidation can destroy value or trigger unfavorable timing.
- Wealth held outside an estate-tax-optimized structure is counted in the gross estate for U.S. federal estate tax.
- The top federal estate tax rate is effectively 40% for taxable estates above the exclusion amount. Current federal exclusion amounts are indexed and should be checked for year-specific numbers with the IRS. See the IRS estate tax overview for the latest thresholds and rules. (References below.)
What PPLI does — core mechanics
- PPLI is a life insurance policy available to accredited/high-net-worth investors where investment sub-accounts (often structured as separate accounts) can hold alternative assets.
- The policy is typically owned by an irrevocable life insurance trust (ILIT) or other non-decedent owner to keep the death benefit out of the insured’s taxable estate.
- Investment growth inside the PPLI is tax-deferred; at death, life insurance proceeds pass to beneficiaries income-tax-free and — when correctly structured — outside the insured’s estate for estate tax purposes.
Key design elements:
- Policy ownership (ILIT vs. insured-owned)
- Custody and valuation protocols for illiquid holdings
- Minimum premiums and premium schedule
- Underwriter wrap fee and management fees charged by asset managers
See related reading: PPLI Policy Design: Minimum Premiums, Rider Options, and Liquidity Considerations.
Case study — illustrative numbers (U.S. client, NYC resident)
Client profile
- Age: 68
- Location: New York City, New York
- Gross estate before planning: $30,000,000
- Composition: $10M concentrated private equity (illiquid), $8M real estate (some illiquidity), $12M liquid investments
- Goal: Avoid forced sale of private equity, reduce estate tax on death, preserve liquidity for heirs while keeping control of investments via trusted managers.
Baseline (no PPLI)
- 2024 federal basic exclusion (example): $13.61M (confirm current IRS amount at time of planning)
- Taxable estate = $30M − $13.61M = $16.39M
- Federal estate tax at 40% on taxable estate ≈ $6.556M
- State estate or inheritance taxes (NY, CA, etc.) may apply — New York currently has its own estate tax regime (check NY Dept. of Taxation for thresholds).
With PPLI (structured properly)
- Transfer $10M of private equity into an irrevocable trust that purchases a PPLI policy (premium funding with the $10M asset or proceeds)
- Policy owned by ILIT, insured remains the policyholder only where appropriate to avoid estate inclusion
- Growth of $10M invested within PPLI over lifetime accumulates tax-deferred and is excluded from insured’s gross estate if transfer and ownership rules are followed
- New gross estate (for estate tax purposes) becomes approx $20M (the $10M inside ILIT/PPLI not included)
Taxable estate with PPLI
- Taxable estate = $20M − $13.61M = $6.39M
- Estate tax ≈ $2.556M
- Approximate federal estate tax savings ≈ $6.556M − $2.556M = $4.0M
Notes and caveats
- Exact savings depend on current exclusion amount, inclusion risks (e.g., retention of incidents of ownership), and state taxes.
- Transfer timing: Gifts into an ILIT may trigger the federal 3-year lookback rule for estate inclusion if the insured retains certain ownership rights; legal drafting and timing are essential.
- Valuation discounts for minority/illiquidity may apply in some transfers but must be defensible under IRS scrutiny.
Costs, typical fee ranges and sample providers
PPLI is customized; fees will vary by underwriter, manager, and domicile (onshore vs offshore). Typical industry ranges:
- Minimum premium (onshore U.S. policies): commonly $2,000,000–$5,000,000
- Minimum premium (offshore domiciles): commonly $1,000,000–$3,000,000
- Investment management fees for underlying alternatives: 0.50%–2.00% (depending on strategy)
- Insurer wrap / administrative fee: 0.25%–1.00% per year
- Custody / accounting fees: $5,000–$25,000 per year for complex illiquid holdings
- One-time underwriting/legal/setup costs: $25,000–$150,000 (depends on complexity and jurisdiction)
Sample provider notes (market examples)
- Pacific Life, Voya, Prudential, Lincoln Financial and Allianz are active life insurers that work with advisors on customized life insurance wrappers; they generally require multimillion-dollar minimums for PPLI-style structures and work through institutional channels.
- Offshore specialty underwriters (e.g., Lombard International — well known in cross-border wealth circles) often serve ultra-HNW families with minimums closer to $1M–$3M but introduce cross-border compliance work.
Provider/Structure Comparison
| Item | Onshore U.S. PPLI | Offshore PPLI |
|---|---|---|
| Typical minimum premium | $2M–$5M | $1M–$3M |
| Insurer options | Major U.S. carriers (Pacific Life, Prudential, Voya) | Specialty international underwriters (Lombard, etc.) |
| Annual wrap/admin fee | 0.25%–0.75% | 0.30%–1.00% |
| Investment flexibility for illiquids | High (with documented custody/valuation) | High, often more flexible for certain non-U.S. assets |
| Regulatory reporting | U.S. domestic reporting (IRS, state) | Additional FATCA/CRS and cross-border considerations |
For deeper operational design and custody governance, see: Separating Investment and Insurance: Custody, Valuation, and Governance in PPLI.
Implementation checklist — practical steps for NYC / California / Florida / Texas clients
- Multidisciplinary team: estate attorney (ILIT drafting), life insurance underwriter, alternative asset manager, CPA/tax advisor.
- Preliminary valuation and liquidity analysis of the illiquid assets.
- Decide domicile: U.S. onshore (favors simplified tax compliance) vs offshore (may offer structuring flexibility but adds reporting complexity).
- Choose underwriter & manager; obtain indicative pricing (wrap fees, mortality charges, admin fees).
- Draft ILIT and transfer documentation; confirm 3-year lookback and incidents-of-ownership avoidance.
- Custody & valuation protocols: independent custodian, third-party appraisal policies, periodic valuation cadence.
- Regulatory compliance: KYC, AML, FATCA/CRS where applicable, and state-level filing requirements.
- Funding (in-kind asset transfer vs sale to fund premium) and liquidity provisions for annual charges.
For guidance on manager selection and underwriter due diligence, read: Selecting Managers and Underwriters for PPLI: Due Diligence for Sophisticated Investors.
Risks and regulatory considerations
- Incidents of ownership or retained rights can cause estate inclusion; legal drafting is critical.
- If illiquid assets are overvalued or valuations are not defensible, IRS scrutiny increases.
- Cross-border clients must manage FATCA/CRS and U.S. tax reporting — see: Structure and Compliance: FATCA, CRS, and Reporting for Private Placement Life Insurance.
- Policy lapse or funding shortfalls can create unintended tax consequences; maintain liquidity or premium financing safeguards.
Conclusion
For HNW U.S. families in New York, California, Florida or Texas holding concentrated illiquid alternatives, PPLI — when structured with an ILIT, credible valuation/custody arrangements and the right underwriter/manager — can preserve investment value while materially reducing estate tax exposure. The magnitude of benefits depends on current federal exclusion amounts, state tax regimes, timing, and compliance discipline. Prospective clients should obtain tailored quotes (minimums, wrap fees, custody costs) from multiple carriers and map costs versus expected estate tax savings before implementation.
References and further reading
- IRS — Estate Tax overview: https://www.irs.gov/businesses/small-businesses-self-employed/estate-tax
- Investopedia — Private Placement Life Insurance (PPLI): https://www.investopedia.com/terms/p/private-placement-life-insurance.asp
- Tax Foundation — Federal estate tax background and exemption history: https://taxfoundation.org/federal-estate-tax-exemption/