Blackstone's Tax-Free Hedge Fund Pitch Draws Senator's Scrutiny
Private placement life insurance is a decades-old strategy that has been gaining popularity among the super-wealthy as a way to protect their fortunes from income and estate taxes.
August 15, 2022 at 12:45 PM
3 minute read
Senate Finance Committee Chair Ron Wyden is probing the use of private placement life insurance among wealthy Americans to avoid taxes, starting with a request for information from Blackstone Inc.'s Lombard International.
Private placement life insurance, or PPLI, is a decades-old strategy that has been gaining popularity among the super-wealthy as a way to protect their fortunes from income and estate taxes. A key perk is that the vehicles, which typically require a minimum investment of at least $2 million, can hold hedge funds and other financial products that would otherwise be taxed at the highest rates.
"I am concerned that these insurance vehicles are being used without a genuine insurance purpose to invest in hedge funds and other investments while avoiding billions of dollars in federal taxes," Wyden, an Oregon Democrat, wrote in an Aug. 15 letter to Stuart Parkinson, chief executive officer of Lombard, which had $67.4 billion of assets under administration as of the end of 2021.
Among the questions for Lombard, a wealth manager that New York-based Blackstone bought in 2014, include updates on its assets under administration in PPLI products, whether they're marketed as a way to avoid taxes and whether Blackstone refers possible clients. Answers are due by Aug. 31.
A Wyden representative said the letter is just the start of the investigation and the probe will include looking at other firms.
After a little-noticed change in insurance law in 2020 made PPLI more lucrative, advisers have been pitching the strategy to wealthy Americans as a way to preserve wealth for heirs and dodge tax increases proposed by President Joe Biden and other Democrats. Firms have started competing to offer increasingly flexible PPLI options, with lower fees and a wider choice of investments, including hedge funds or credit products.
While it's not the simplest strategy — strict rules determine whether a policy qualifies as life insurance, which, in turn, gives the accounts their tax benefits — it can avoid federal and state levies that in some cases surpass 50%.
Internal Revenue Service rules also demand that policyholders relinquish day-to-day control of their PPLI's decisions and the portfolio must be diversified in certain ways. These complications are among the reasons why advisers have said wealthy Americans should devote at least $5 million to make the strategy worthwhile.
"By definition, these policies are only available to the wealthiest 1% of Americans and offer a myriad of tax advantages not available to most working Americans," Wyden wrote.
The tax, climate and health bill approved by Congress this month doesn't include Biden's proposals to increase tax rates on wealthy individuals and their investment gains. However, the legislation, which Biden has said he will sign this week, does provide extra funding for the IRS to hire more auditors to scrutinize rich Americans' tax avoidance strategies.
Ben Steverman reports for Bloomberg News.
NOT FOR REPRINT
© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
You Might Like
View AllTrump Mulls Big Changes to Banking Regulation, Unsettling the Industry
CFPB Orders Big Banks to Limit Overdraft Fees to $5. But Will Its Edict Stick?
3 minute readUS Judge Throws Out Sale of Infowars to The Onion. But That's Not the End of the Road for Sandy Hook Families
4 minute readGreenberg Traurig Initiates String of Suits Following JPMorgan Chase's 'Infinite Money Glitch'
Trending Stories
- 1Uber Files RICO Suit Against Plaintiff-Side Firms Alleging Fraudulent Injury Claims
- 2The Law Firm Disrupted: Scrutinizing the Elephant More Than the Mouse
- 3Inherent Diminished Value Damages Unavailable to 3rd-Party Claimants, Court Says
- 4Pa. Defense Firm Sued by Client Over Ex-Eagles Player's $43.5M Med Mal Win
- 5Losses Mount at Morris Manning, but Departing Ex-Chair Stays Bullish About His Old Firm's Future
Who Got The Work
J. Brugh Lower of Gibbons has entered an appearance for industrial equipment supplier Devco Corporation in a pending trademark infringement lawsuit. The suit, accusing the defendant of selling knock-off Graco products, was filed Dec. 18 in New Jersey District Court by Rivkin Radler on behalf of Graco Inc. and Graco Minnesota. The case, assigned to U.S. District Judge Zahid N. Quraishi, is 3:24-cv-11294, Graco Inc. et al v. Devco Corporation.
Who Got The Work
Rebecca Maller-Stein and Kent A. Yalowitz of Arnold & Porter Kaye Scholer have entered their appearances for Hanaco Venture Capital and its executives, Lior Prosor and David Frankel, in a pending securities lawsuit. The action, filed on Dec. 24 in New York Southern District Court by Zell, Aron & Co. on behalf of Goldeneye Advisors, accuses the defendants of negligently and fraudulently managing the plaintiff's $1 million investment. The case, assigned to U.S. District Judge Vernon S. Broderick, is 1:24-cv-09918, Goldeneye Advisors, LLC v. Hanaco Venture Capital, Ltd. et al.
Who Got The Work
Attorneys from A&O Shearman has stepped in as defense counsel for Toronto-Dominion Bank and other defendants in a pending securities class action. The suit, filed Dec. 11 in New York Southern District Court by Bleichmar Fonti & Auld, accuses the defendants of concealing the bank's 'pervasive' deficiencies in regards to its compliance with the Bank Secrecy Act and the quality of its anti-money laundering controls. The case, assigned to U.S. District Judge Arun Subramanian, is 1:24-cv-09445, Gonzalez v. The Toronto-Dominion Bank et al.
Who Got The Work
Crown Castle International, a Pennsylvania company providing shared communications infrastructure, has turned to Luke D. Wolf of Gordon Rees Scully Mansukhani to fend off a pending breach-of-contract lawsuit. The court action, filed Nov. 25 in Michigan Eastern District Court by Hooper Hathaway PC on behalf of The Town Residences LLC, accuses Crown Castle of failing to transfer approximately $30,000 in utility payments from T-Mobile in breach of a roof-top lease and assignment agreement. The case, assigned to U.S. District Judge Susan K. Declercq, is 2:24-cv-13131, The Town Residences LLC v. T-Mobile US, Inc. et al.
Who Got The Work
Wilfred P. Coronato and Daniel M. Schwartz of McCarter & English have stepped in as defense counsel to Electrolux Home Products Inc. in a pending product liability lawsuit. The court action, filed Nov. 26 in New York Eastern District Court by Poulos Lopiccolo PC and Nagel Rice LLP on behalf of David Stern, alleges that the defendant's refrigerators’ drawers and shelving repeatedly break and fall apart within months after purchase. The case, assigned to U.S. District Judge Joan M. Azrack, is 2:24-cv-08204, Stern v. Electrolux Home Products, Inc.
Featured Firms
Law Offices of Gary Martin Hays & Associates, P.C.
(470) 294-1674
Law Offices of Mark E. Salomone
(857) 444-6468
Smith & Hassler
(713) 739-1250