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ASSET PROTECTION USING SWISS ANNUITIES
Growing the wealth is important, but so is
protecting it from false claimants, and Switzerland
excels at this. Almost anybody with wealth in the U.S.
is at risk, as discussed in the early sections of
this report. With everything that can happen to
savings, it is nice to know that there is something,
somewhere, nobody can touch.
According to Swiss law, insurance policies --
including annuity contracts -- cannot be seized by
creditors. They also cannot be included in a Swiss
bankruptcy procedure. Even if an American court
expressly orders the seizure of a Swiss annuity account
or its inclusion in a bankruptcy estate, the account
will not be seized by Swiss authorities, provided that
it has been structured the right way.
There are two requirements: A U. S. resident who
buys a life insurance policy from a Swiss insurance
company must designate his or her spouse or
descendants, or a third party (if done so irrevocably)
as beneficiaries. Also, to avoid suspicion of making a
fraudulent conveyance to avoid a specific judgment,
under Swiss law, the person must have purchased the
policy or designated the beneficiaries not less than
six months before any bankruptcy decree or collection
process.
The policyholder can also protect the policy by
converting a designation of spouse or children into an
irrevocable designation when he becomes aware of the
fact that his creditors will seize his assets and that
a court might compel him to repatriate the funds in the
insurance policy. If he is subsequently ordered to
revoke the designation of the beneficiary and to
liquidate the policy he will not be able to do so as
the insurance company will not accept his instructions
because of the irrevocable designation of the
beneficiaries.
Article 81 of the Swiss insurance law provides
that if a policyholder has made a revocable designation
of spouse or children as beneficiaries, they
automatically become policyholders and acquire all
rights if the policyholder is declared bankrupt. In
such a case the original policyholder therefore
automatically loses control over the policy and also
his right to demand the liquidation of the policy and
the repatriation of funds. A court therefore cannot
compel the policyholder to liquidate the policy or
otherwise repatriate his funds. If the spouse or
children notify the insurance company of the
bankruptcy, the insurance company will note that in its
records. Even if the original policyholder sends
instructions because a court has ordered him to do so,
the insurance company will ignore those instructions.
It is important that the company be notified promptly
of the bankruptcy, so that they do not inadvertently
follow the original policyholder's instructions because
they weren't told of the bankruptcy.
If the policyholder has designated his spouse or
his children as beneficiaries of the insurance policy,
the insurance policy is protected from his creditors
regardless of whether the designation is revocable or
irrevocable. The policyholder may therefore designate
his spouse or children as beneficiaries on a revocable
basis and revoke this designation before the policy
expires if at such time there is no threat from any
creditors.
These laws are part of fundamental Swiss law.
They were not created to make Switzerland an asset
protection haven. There is a current fad of various
offshore islands passing special legislation allowing
the creation of asset protection trusts for foreigners.
Since they are not part of the fundamental legal
structure of the country concerned, local legislators
really don't care if they work or not. And since most
of these trusts are simply used as a convenient legal
title to assets that are left in the U.S., such as
brokerage accounts, houses, or office buildings, it is
very easy for an American court to simply call the
trust a sham to defraud creditors and ignore its legal
title -- seizing the assets that are within the
physical jurisdiction of the court.
Such flimsy structures, providing only a thin
legal screen to the title to American property, are
quite different from real assets being solely under the
control of a rock-solid insurance company in a major
industrialized country. A defendant trying to convince
an American court that his local brokerage account is
really owned by a trust represented by a brass-plate
under a palm tree on a faraway island is not likely to
be successful -- more likely the court will simply
seize the asset.
But with the Swiss annuity, the insurance policy
is not being protected by the Swiss courts and
government because of any especial concern for the
American investor, but because the principle of
protection of insurance policies is a fundamental part
of Swiss law -- for the protection of the Swiss
themselves. Insurance is for the family, not something
to be taken by creditors or other claimants. No Swiss
lawyer would even waste his time bringing such a case.
Swiss annuities minimize the risk posed by U. S.
annuities. They are heavily regulated, unlike in the
U.S., to avoid any potential funding problem. They
denominate accounts in the strong Swiss franc, compared
to the weakening dollar. And the annuity payout is
guaranteed.
Swiss annuities are exempt from the famous 35%
withholding tax imposed by Switzerland on bank account
interest received by foreigners. Annuities do not have
to be reported to Swiss or U.S. tax authorities.
A U.S. purchaser of an annuity is required to pay
a 1% U.S. federal excise tax on the purchase of any
policy from a foreign company. This is much like the
sales tax rule that says that if a person shops in a
different state, with a lower sales tax than their home
state, when they get home they are required to mail a
check to their home state's sales tax department for
the difference in sales tax rates.
The U.S. federal excise tax form (IRS Form 720)
does not ask for details of the policy bought or who it
was bought from -- it merely asks for a calculation of
1% tax of any foreign policies purchased. This is a
one time tax at the time of purchase; it is not an
ongoing tax. It is the responsibility of the U. S.
taxpayer, to report the Swiss annuity or other foreign
insurance policy. Swiss insurance companies do not
report anything to any government agency, Swiss or
American -- not the initial purchase of the policy, nor
the payments into it, nor interest and dividends
earned.
Special Advantages of Swiss Annuities
* They Pay Competitive Dividends and Interest.
* No foreign reporting requirements. A swiss
franc annuity is not a "foreign bank account," subject
to the reporting requirements on the IRS Form 1040 or
the special U. S. Treasury form for reporting foreign
accounts. Transfers of funds by check or wire are not
reportable under U. S. law by individuals -- the
reporting requirements apply only to cash and "cash
equivalents" -- such as money orders, cashier's checks,
and travellers' checks.
* No forced repatriation of funds. If America
were to eventually institute exchange controls, the
government might require that most overseas investments
be repatriated to America. This has been a common
requirement by most governments that have imposed
exchange controls. Insurance policies, however, would
likely escape any forced repatriation under future
exchange controls, because they are a pending contract
between the investor and the insurance company. Swiss
bank accounts would probably not escape such controls.
(To the bureaucrats writing such regulations, an
insurance policy is a commodity already bought, rather
than an investment.)
* Instant liquidity. With the Swiss Plus plan,
described later, an investor can liquidate up to 100%
of the account without penalty (except for a SFr500
charge during the first year.)
* Swiss safety. As already discussed, Switzerland
has the world's strongest insurance industry, with no
failures in 130 years.
* No Swiss tax. If an investor accumulates Swiss
francs through standard investments, he will be subject
to the 35% withholding tax on interest or dividends
earned in Switzerland. Swiss franc annuities are free
of this tax. In the U. S., insurance proceeds are not
taxed. And earnings on annuities during the deferral
period are not taxable until income is paid, or when
they are liquidated.
* Convenience. Sending deposits to Switzerland is
no more difficult than mailing an insurance premium in
the United States. A personal check in U. S. dollars
is written and sent overseas (50? postage instead of
29?). Funds can also be transferred by bank wire.
* Qualified for U.S. Pension Plans. Swiss
annuities can be placed in a U. S. tax-sheltered
pension plans, such as IRA, Keogh, or corporate plans,
or such a plan can be rolled over into a Swiss-annuity.
(To put a Swiss annuity in a U.S. pension plan, all
that is required is a U.S. trustee, such as a bank or
other institution, and that the annuity contract be
held in the U.S. by that trustee. Many banks offer
"self-directed" pension plans for a very small annual
administration fee, and these plans can easily be used
for this purpose.)
* No Load Fees. Investment in Swiss annuities is
on a "no load" basis, front-end or back-end. The
investments can be canceled at any time, without a loss
of principal, and with all principal, interest and
dividends payable if canceled after one year. (If
canceled in the first year, there is a small penalty of
about 500 Swiss francs, plus loss of interest.)
Swiss Plus
A new Swiss annuity product (first offered in
1991), SWISS PLUS, brings together the benefits of
Swiss bank accounts and Swiss deferred annuities,
without the drawbacks -- presenting the best Swiss
investment advantages for American investors.
SWISS PLUS, is a convertible annuity account,
offered only by Elvia Life of Geneva. Elvia Life is a
$2 billion strong company, serving 220,000 clients, of
which 57% are living in Switzerland and 43% abroad.
The account can be denominated in the Swiss franc, the
U.S. dollar, the German mark, or the ECU (European
Currency Unit), and the investor can switch at any time
from one to another. Or an investor can diversify the
account by investing in more than one currency, and
still change the currency at any time during the
accumulation period -- up until beginning to receive
income or withdrawing the capital.
Although called an annuity, SWISS PLUS acts more
like a savings account than a deferred annuity. But it
is operated under an insurance company's umbrella, so
that it conforms to the IRS' definition of an annuity,
and as such, compounds tax-free until it is liquidated
or converted into an income annuity later on.
SWISS PLUS accounts earn approximately the same
return as long-term government bonds in the same
currency the account is denominated in (European
Community bonds in the case of the ECU), less a half-
percent management fee.
Interest and dividend income are guaranteed by a
Swiss insurance company. Swiss government regulations
protect investors against either under-performance or
overcharging.
SWISS PLUS offers instant liquidity, a rarity in
annuities. All capital, plus all accumulated interest
and dividends, can be freely accessible after the first
year. During the first year 100% of the principal is
freely accessible, less a SFr500 fee, and loss of the
interest. So if all funds are needed quickly, either
for an emergency or for another investment, there is no
"lock-in" period as there is with most American
annuities.
Upon maturity of the account, the investor can
choose between a lump sum payout (paying capital gains
tax on accumulated earnings only), rolling the funds
into an income annuity (paying capital gains taxes only
as future income payments are received, and then only
on the portion representing accumulated earnings), or
extend the scheduled term by giving notice in advance
of the originally scheduled date (and continue to defer
tax on accumulated earnings).
Contact Information
The only way for North Americans to get
information on Swiss annuities is to send a letter to a
Swiss insurance broker. This is because very few
transactions can be concluded directly by foreigners
either with a Swiss insurance company or with regular
Swiss insurance agents.
When you contact a Swiss insurance broker, be sure
to include, in addition to your name, address, and
telephone number, your date of birth, marital status,
citizenship, number of children and their ages, name of
spouse, a clear definition of your financial objectives
(possibly on what dollar amount you would like to
invest), and whether the information is for a
corporation or an individual, or both.
So far one firm specializes in dealing with
English speaking investors, and everybody in the firm
speaks excellent English. They are also familiar with
U. S. laws affecting the purchase of Swiss annuities.
Contact:
Mr. Jurg Lattmann.
JML Swiss Investment Counsellors AG, Dept. 212,
Germaniastrasse 55
8031 Zurich
Switzerland
telephone (41-1) 363-2510
fax: (41-1) 361-074, attn: Dept. 212
A Swiss annuity for a portion of your assets can
add a useful pillar to your overall protection plan,
because it is something completely separate from your
structure of family limited partnerships and living
trusts, and has its own independent set of protective
rules. It also adds an extremely important
diversification into a "hard money" asset.