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.