Tax shelter not just for the wealthy

The Blackstone Group LP has been pitching an innovative tax shelter to its ultra-wealthy clients. Invest your money with us and never pay any taxes. Blackstone, through its subsidiary, is recommending its clients utilize specially designed life insurance contracts to shelter their investment portfolios from state and federal income tax. Traditionally, life insurance policies grow tax-free and allow for tax-free income and death benefits, but its growth has traditionally been linked to low-yielding conservative assets.

The specially designed contracts being touted by Blackstone and other firms that service high net worth clients allow their clients to invest in a wide range of unique investments including hedge funds in a tax-free environment. According to Bloomberg, clients have placed about $3 billion dollars into these types of vehicles in the past year. Some consider this a “loophole” in current tax laws since life insurance has been blessed by Congress with extremely favorable tax treatment to create an incentive for people to own life insurance to protect their families. However, this strategy is designed to eliminate taxes not necessarily to provide life insurance benefits to one’s dependents.

Nevertheless, the prospect of never paying any taxes on dividends, interest, capital gains or distributed income is very appealing to those who dislike paying taxes even with historically low tax rates. Although, the strategy has been around for decades, if tax rates rise in the future, the demand for strategies that help avoid income taxes should only increase. For customized “private placement” life insurance with your own personal choice of investment offerings, there is usually a minimum account size of a couple million dollars. However, for those investors who aren’t “ultra-wealthy” but still would prefer not to pay any income taxes on their investments, there are similar “off the rack” strategies available using more conventional investments.


Keith Singer

Keith Singer, a well-known financial advisor in Florida, is both a CERTIFIED FINANCIAL PLANNER™ (CFP®) practitioner and a licensed Florida attorney.

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