Investor Control Dooms Private Placement Life Insurance Policy In Webber

Jeffrey T. Webber is a venture capital and private-equity fund manager. Seeking, like the rest of us, to mitigate the taxes on his investments, Webber ended up in 1998 in the offices of an estate planner by the name of William Lipkind. As the U.S. Tax Court would later relate:

Mr. Lipkind laid out a complex estate plan that involved a grantor trust and the purchase of private placement life insurance policies from Lighthouse. He explained that private placement insurance is a type of variable life insurance that builds value in a separate account. (The details of this strategy are discussed more fully below.) Mr. Lipkind acknowledged that this tax-minimization strategy had certain tax risks, but he orally assured that the strategy was sound.

Webber settled an Alaska Trust, taxed to Webber as a grantor trust. Alaska was chosen in an attempt to avoid California state taxes. Alaska Trust Company and Lipkind were chosen as the Trustee, and Webber was made the Trust Protector and given the powers to remove and replace them at any time. Webber's children, brother, and brother's children were the beneficiaries of the Alaska Trust.