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An Introduction to Swiss Annuities

The universe of offshore tax planning and asset protection is large and complex. There are no "magic bullet" structures; instead there is a myriad of choices. The hallmark of a savvy practitioner is not only knowing of all the available options, but also knowing when to use which option for a particular client. Swiss annuities should be considered by all practitioners looking to confer significant tax and asset protection benefits on their clients.

For tax purposes, variable Swiss annuities allow for a complete deferral of the value build-up within the policy (similar to domestic annuities that the reader is familiar with). If a trust (as discussed below) is named as the beneficiary of the policy, the trust should be a grantor trust for income tax purposes. It should be noted that fixed annuities do not enjoy the advantage of income tax deferral as they are deemed original issue discount instruments for U.S. tax purposes. To maintain the tax benefits the policy owner should not be able to direct how the annuity is invested, but can appoint a "third-party" investment advisor to make the investment decisions.

Foreign annuities are not subject to U.S. tax reporting requirements generally associated with foreign bank accounts (U.S. Treasury Form TD F 90-22.1). Swiss annuities are not subject to the 1% excise tax commonly imposed on purchases of foreign life insurance or annuity policies due to the double tax treaty signed by the U.S. and Switzerland in 1998.

Swiss law offers significant asset protection for life insurance products (which includes annuities). Swiss annuities are not subject to collection remedies directed against the owner of the policy and are not deemed to be a part of the bankruptcy estate of the policy owner. Even if a foreign court authorizes the attachment or other levy of the policy, whether in bankruptcy or otherwise, a Swiss court would not issue an order directing the assignment of the policy to the creditor or the bankruptcy trustee. Because Swiss insurance companies are not subject to the jurisdiction of a U.S. court, without an order from a Swiss court the annuities are not reachable by creditors.

Even if a bankruptcy proceeding is initiated against the policy owner in Switzerland, Swiss law provides that when the policy owner is adjudicated bankrupt, the ownership of the policy automatically transfers over to the beneficiaries of the policy. Because the policy would no longer be an asset of the debtor, the debtor’s creditors would not be able to reach it. Fraudulent transfer challenges would not apply as the transfer is automatic under Swiss law.

The blanket protection afforded to annuities under Swiss law applies only when the annuity policy incorporates an appropriate beneficiary designation. A beneficiary designation that would work has to be either (i) an irrevocable beneficiary designation with no restriction on the identity of the beneficiary; or (ii) a revocable beneficiary designation with the spouse or the descendants of the policy owner named as beneficiaries.

Revocable designations allow for greater flexibility. Spouse and descendants (kids and grandkids) can be named as beneficiaries while there is a pending collection action, and then removed as beneficiaries following the conclusion of the collection action. Irrevocable designations allow for sophisticated estate planning.

An irrevocable trust (preferably a grantor trust) can be designated as the beneficiary of the policy. While that designation is irrevocable, the policy owner (who is also the settlor of the trust) can retain the ability to designate trust beneficiaries by retaining a power of attorney exercisable on death.

With proper planning, a Swiss annuity can enhance any asset protection or tax planning structure. For the past several years we have been working with Darrell Aviss of SwissGuard International (a Swiss insurance broker) in making these structures available to our clients (learn more about Darrell and SwissGuard We encourage you to contact Darrell or one of us to learn more about what these annuities can do for your clients.

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Robert F. KluegerJD, LLM 
Mr. Klueger is one of the very few private attorneys in America who has argued a tax case before the United States Supreme Court, [United States v. Brockamp, 519 US 347 (1997)], which resulted in a change in the tax law regarding tax refund claims filed by disabled taxpayers....

Jacob Stein, JD, LLM
Mr. Stein is one of California’s best known attorneys and AV rated by Martindale-Hubbell (highest possible rating). He lectures dozens of legal seminars each year on the subjects of asset protection and advanced tax planning....
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