U.S. tax-exempt investors such as Foundations, Endowments, and Pensions are subject to taxation of Unrelated Business Taxable Income ("UBTI") on certain types of investments. A properly structured Private Placement Deferred Variable Annuity ("DVA") changes the characterization of income from directly held investment income to annuity income which is exempt from UBTI under IRC Section 512. As owner of the assets, the life insurance company is responsible for all tax related filings (including federal, state and K-1 filings). The DVA will also simplify the institution's administration of these complex transactions.
Eliminate UBTI - Recharacterizes taxation on income from UBTI-generating investments to annuity income. NO K-1s, 990-T or state fillings
Maximizes Tax Efficiency - Income and gains on the assets in the separate account generally are not subject to U.S. federal income tax under IRC Section 512
Tax & Cost-Efficient Vehicle - The cost associated with an DVA is minimal compared to the elimination of all tax leakage from the UBTI-generating investment
Unlimited Investment - There is not a limit on premium contributions to the DVA
Investor Control Doctrine*
Most common asset classes held within DVA structure***:
Real Estate - Commercial & Residential
Oil & Gas
Timber & Agriculture
Master Limited Partnerships
Debt (Private Credit)
Separately Managed Accounts
*Investor (Policy Owner) cannot directly or indirectly influence investment managers choice of underlying securities and/or funds. Investors create an investment policy statement/philosophy, but investment managers must have full discretion over investment choices.
** Underlying investments must comply with IRC Section 817(h).
***Asset classes shown are for illustrative purposes only. Each asset class has its own types of risk that may affect investment results.