Overview
Recently (January 15th) I celebrated my sixty fifth birthday. Where did the time go? If my East German father Willy Wolfgang Nowotny were still with us, I could hear him say, “Too soon old, too late smart.” While I was never a Beatles fan, I am reminded of Paul McCartney’s “When I’m 64.” So, I am a year late!
The title of this article relates to the Mexican version of “Happy Birthday” so beautifully sung by Vicente Fernandez. Then there is the Colombian vallenato version of “Happy Birthday” by Diomedes Diaz called “Tu Cumpleaños.” Most Latin Americans know the Mexican version of “Happy Birthday” and fewer know the Colombian vallenato version. Vallenato is Colombian folk music featuring the accordion. This sound is remarkably similar to the typical music of Panama that I heard in my youth.
It is never too late to acknowledge and express gratitude for everything in my life (in no particular order):
God – a loving God who has a design and purpose for my life. His grace and mercy are by far the greatest gift that I will ever receive. He loved me enough to send his Son to the Cross for a penalty that I should have paid and suffered for.
Parents – A Mom and Dad who sacrificed for me in many different ways. While they did not have a perfect marriage nor were they perfect parents, I never doubted a day in my life that they loved me.
Wife – I have been married for forty-two years. My wife could pull a Rodney Dangerfield when asked “How long have you been married?” whereupon he answered with the response “Too long!” As if the grace and mercy of a loving God were not enough, God provided me with a wife embodied with the holy spirit, who has shown me an abundance of grace and mercy in those forty-two years. Certainly, more than I deserved.
Children – I have three daughters who I love dearly and am enormously proud of. Yes, they put us through the ropes during their teenage years.
Grandchildren – If I could quote my wife, she would defend the grandchildren’s’ robbing of a bank by claiming the bank had more money than it needed and needed to be robbed.
Canal Zone Friends – lifelong friends. It may be premature to start packing to return to the only country that we ever knew, but it remains our hometown.
West Point Friends – We suffered together for four long years. The academic dean was merciful. My classmates in company D-1 (the Ducks) have endured my quirky sense of humor for forty years as I still try to get the Dean to change my transcript.
The Story of How I Got From Here to There
The sequence of life events that led to the “here and now,” goes something like this. I grew up in the Panama Canal Zone from age one until I returned to the United States for my last two years of high school at Culver Military Academy in 1978. After Culver I attended the United States Military Academy where I graduated in 1982.
While I was an Army officer at Ft. Hood, I started taking the CFP and CLU courses. By the time that I left the Army as Captain in 1987, I had completed both programs. I started in financial services with CIGNA in Boca Raton and moved to Miami in 1989 to attend law school at the University of Miami in the evening program. I worked in the financial services industry while pursuing the JD and LL.M programs. After getting admitted to the Florida Bar in 1994, I continued to work heavily with tax planning using life insurance. I was introduced to PPLI in 1997 by Howard Shapiro and Suzy Peterfriend (of blessed memory) and have never looked back.
The State of PPLI
A whirlwind of events regarding the political landscape has transpired affecting PPLI. First, President Trump was reelected in the November 2024 elections. Nevertheless, Senator Wyden, the outgoing Senate Finance Committee Chairperson issued a proposed regulation that retroactively changed the tax treatment of private placement life insurance.
Quickly, the American Council of Life Insurers (ACLI), the life insurance industry’s main lobbying organization, and FINSECA, the main lobbying agency for life insurance agents and financial advisors, denouncing the proposed regulation. From my standpoint, any bullets from both of the organizations would be enough to kill any adverse changes to the tax treatment of life insurance.
To add a little hearsay to the story, an informed source told me that a well-positioned DC lobby organization for the life insurance industry related that Wyden’s fixation on PPLI was largely driven by a combination of a vendetta for Blackrock, the behemoth, who is a constant thorn in the side of the Senator for its strong endorsement of favorable carried interest taxation. Having lost the carried interest battle, the Senator apparently thought that the only way to Blackrock was to attack its interests. Blackrock used to own Lombard Life Assurance, the largest domestic PPLI carrier.
The tax favored treatment of PPLI is the “sacred cow” of the life insurance industry. Aside from retail life insurance, corporate owned life insurance (COLI) and bank owned life insurance (BOLI), rely heavily on the favorable tax treatment of life insurance. In my view, there was no way ACLI and FINSECA would allow adverse legislation to affect the tax treatment of permanent life insurance. Such a change would represent a crack in the armor of the life insurance industry and as we know, cracks only get bigger.
On the IRS and Department of Justice front, it remains to be seen how the new administration will affect PPLI. The new administration has already announced a hiring freeze in the federal government. Additionally, the government has already clawed back $40 billion of the $80 billion appropriation given to the IRS following the passage of the Inflation Reduction Act. It remains to be seen whether the IRS will retain the 3,500 auditors added during the Biden administration.
Summary
Life insurance has enjoyed tax-favored treatment since the first Internal Revenue Code in 1913. Furthermore, life insurance enjoys similar tax treatment around the world. The life insurance industry in the U.S. is massive with very deep pockets. Financial advisors selling life insurance are also well advised with effective lobbyists. COLI and BOLI assets alone represent approximately $250 billion of policy assets as of the end of 2023. High net worth PPLI would add an additional $40 billion of policy assets. Retail life insurance assets would mostly likely be in the low trillions. My point is that it is unlikely that changes will occur to adversely affect the tax treatment of life insurance and high net worth PPLI in the Trump administration.
I have said since the first day that I entered the financial services industry in July 1987 that life insurance is he most tax advantaged investment structure on the Planet. The ability to coordinate a taxpayer’s personal and business tax planning with PPLI is unsurpassed when compared to other tax planning options. PPLI may end up being the taxpayer’s best birthday gift ever!
Sincerely,
Gerald R. Nowotny, Esq.