Swiss Annuity Blog
Thursday, July 14, 2005


The Swiss Insurance Industry and Annuities

The Advantages of Swiss Annuities

Not all annuities are the same. Unlike in the U.S., Swiss annuities are heavily regulated in an effort to avoid any potential problems. Frankly, Swiss annuities reduce the risks that U.S. annuities carry. Swiss annuities are denominated in the solid Swiss franc (backed by gold), while U.S. annuities are backed by the dollar, which has been losing purchasing power throughout this entire century. Additionally, the Swiss payout is guaranteed. Swiss annuities are quite attractive for other reasons as well. They are exempt from the 35% withholding tax that Switzerland imposes on bank account interest received by foreigners. The 1% U.S. excise tax on the purchase of foreign insurance product (including annuities) does not apply to Swiss annuities, as the Swiss-U.S. double taxation treaty eliminates this tax. It is important to note that Swiss insurance companies do not report purchasing information -- not the purchase of the policy, not the payments into the policy, nor the interest or dividends earned -- to any government agency in Switzerland or the U.S.
Payments of Swiss annuities are flexible and can be arranged to fit the investor's needs. While annuity payments are denominated in Swiss francs, the investor may receive them in any currency he or she wishes. Payments can be converted at the investor's bank in Switzerland, or the investor may instruct the insurance company to make the conversion. Payments can be received annually, every six months or quarterly. Although a monthly option is available, it is restricted to Swiss residents. Payments can be sent anywhere in the world or sent to the bank of the investor's choice. Most North Americans prefer to receive their annuity payments by check in U.S. dollars. One of the mainstays of Swiss annuity plans is their confidentiality. Another is their safety. A third is their flexibility. Together these factors combine to make Swiss annuities excellent investment choices. But there are even more reasons to choose Swiss annuities. Annuities, fixed or variable, are treated as life insurance policies under Swiss law and are exempt from Swiss taxes. It should be noted at the outset that both legal entities and natural persons may be designated as beneficiaries under Swiss law. With respect to certain annuities and insurance companies, the policyholder may be a legal entity. The person insured, however, must in all cases be a natural person. Here are some and untold facts about swiss annuity....

Special Advantages of Swiss Annuities

They Pay Competitive Dividends and Interest.

No foreign reporting requirements.

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.)

Protection from creditors. No creditor may attach a Swiss annuity, if the purchaser's wife or children are named as beneficiaries. Liens cannot be attached to these assets. This way, the purchaser knows that at least a portion of his wealth is beyond the reach of a litigious society and will, indeed, go to his designated heirs.

Instant liquidity. With annuities, 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.

Convenience. Sending deposits to Switzerland is no more difficult than mailing an insurance premium. Funds can also be transferred by bank wire.

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.)

Not Locked out: Your swiss annuity is not 'locked out '. You can cancel your annuity anytime or if you chose to en-cash your annuity within a year, you can do it by paying a small penalty. Your annuity is l00% liquid after first year.

Swiss annuity products bring together the benefits of Swiss bank accounts and Swiss deferred annuities, without the drawbacks -- presenting the best Swiss investment advantages for investors. Interest and dividend income are guaranteed by a Swiss insurance company. Swiss government regulations protect investors against either under-performance or overcharging.
Swiss annuities are a unique investment product. Officially labeled annuities, they function more like a savings account than a deferred annuity. The earnings of Swiss annuities are impressive compared to similar products. Swiss annuity accounts achieve about the same return as long-term government bonds in the same currency in which the account is denominated (in the case of the ECU European Union bonds), less a half-percent management fee. Like other Swiss investment products, Swiss annuities benefit from the same government regulations. For example, regulations protect investors from both under-performance and overcharging. The Swiss insurance company guarantees both interest and dividend income.

When the account matures, the investor has several options.

* He or she can select a lump sum payout.
* He or she may decide to roll the funds into an income annuity.

The investor may simply choose to extend the scheduled term by giving notice in advance of the originally scheduled date.

Another important feature of Swiss annuities is instant liquidity. Most annuities don't offer this. In a Swiss annuity account all capital, plus all accumulated interest and dividends, is accessible after the first year without penalty. During the first year, 100% of the principal is freely accessible, less a SFr500 fee, and loss of interest. Unlike most American annuities, if you need your funds for an emergency or wish to make another investment, you are not prevented from obtaining your money and you are not subjected to high penalties. Just fill out the Request for an Investment Proposal form

Swiss Annuities and Flexibility

Most people buy annuities so that they will have a constant source of income during retirement. The Swiss realize that the needs of people differ and so they have developed a variety of options for both single and joint annuities. hen you consider the various options annuities offer, there are several factors you should examine. First, you should consider your age and the age of your spouse when the income from your annuity is likely to begin. You must also consider the amount of the investment you are willing to make. Such factors will play a crucial role in the type of annuity you select. Just fill out the Request for an Investment Proposal form

Of all the factors you should examine, it is age that probably will have the greatest impact. The older an investor is, for example, the more income difference there will be between an annuity without refund and one with any of the beneficiary options. For example, should you purchase an annuity when you are 55, the difference in life income created under each option is not that much, because the life expectancy for both men and women at 55 exceeds 25 years. Based on life expectancy and payment rates, the insurance company will likely have to pay out the entire amount of the plan no matter what option the contract contains. Options will have different effects, based on age. There are many options from which you may choose. Assessing your financial goals and situation is important. Asking yourself questions similar to the ones that follow can prove helpful:

* Who is dependent upon my financial support?
* What is the purpose of my buying an annuity?
* How much money can I open the account with?
* How much money can I invest monthly? Yearly?
* When (based on current considerations and factors) do i plan to take funds out?
* How (based on current considerations and factors) do I plan to take funds out?

Asking yourself such questions can lead you to your best options with an annuity. For example, if you wish to use the annuity to provide income for your spouse someday, then you would consider a plan that does in fact provide for that person. You might consider a joint annuity, a plan called "10 years certain, with refund," or you might decide on taking out single annuities, one for you and one for your spouse.

On the other hand, if you have no dependents, and are over 65, you may decide on a straight-life annuity that pays you the highest income for as long as you live. In this case there would be no need to leave any funds behind. After your death the insurance company would stop all payments. You would receive the highest income possible for the rest of your life, but here would be nothing for beneficiaries. If you wish to provide for beneficiaries, you should consider annuities "with refund," or "10, 15 (or any number) years certain." Each plan has special features.

"With refund" is a plan that at the death of the policyholder, the unused portion of the premium paid is refunded to the beneficiary in a lump sum. The amount of the payment is calculated by subtracting the amount of income that was paid out from the original premium. After the final payout, the account is closed.

"Ten years certain" is a plan in which income is paid for a minimum of ten years. If the annuity owner dies after receiving only payments for three years, his or her beneficiary would receive the income for another 7 years. The number of years is written into the contract at the time the annuity is bought. Thus, the purchaser can buy an annuity with an option of "ten years certain," "15 years certain," "25 years certain," or whatever he or she wishes.

Joint annuities work in the same way regarding payments. Assuming a ten year certain contract -- if one of the owners dies after receiving payments for three years, the other owner, or beneficiary, will receive payments for the remainder of the contract.

Legal Protection of Assets in Swiss Annuities

Growing the wealth is important, but so is protecting it from false claimants, and Switzerland excels at this. 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 a foreign 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 person 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 ust 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 mpel 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. he 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 elsewhere, such as brokerage accounts, houses, or office buildings, it is very easy for a foreign 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 foreign 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 a 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 s 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 foreign 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. Just fill out the Request for an
Investment Proposal form

Swiss Income Annuities Can Be Tailor-Made

The main purpose of an annuity is to provide you with a constant income for as long as you live. But people's needs and circumstances differ, and to accommodate them a variety of beneficiary options is available for both single and joint annuities.

In weighing the merits of the different annuity plans, several factors come into play. Whether you are male or female, how old you and your spouse will be when your life income begins, and the size of your deposit -- all these have a bearing,a s well as the kind of beneficiary option you want. Your age plays a crucial role in these considerations. The older you are, the more income difference there will be between an annuity without refund and one with any of the beneficiary options. If you can take out such an annuity at age 55, the difference in life income created under each option is not that much, because at age 55 the life expectancy for both males and females exceeds 25 years. According to statistics, therefor, the insurance company will probably have to pay out he entire amount regardless of what option the contract includes.
The older you are, however, the more relevant the option becomes: whether the contract expires at death with o further payments (without refund) or whether some or all of the unused portion is refunded to a beneficiary (10 years certain, with refund). The life income will accordingly vary greatly. Choosing among the various beneficiary options requires you to ask yourself a few questions. For example, is there anyone whose well-being depends on your financial support? If there is indeed someone such as a spouse, then you should consider a plan that provides for that person (or persons, if children are involved) after your death. In the case of a spouse, this might involve one of the following options: 10 years certain, with refund; a joint annuity; or perhaps a single annuity for our spouse as well as for you.

If you have no immediate dependent (or would leave no survivor who would be in hardship without you) and you are over 65, you may do best with a straight-life annuity paying the highest income for as long as you live. This means that after your death the insurance company stops all payments. This option offers the highest life income per franc of premium deposit -- regardless of whether you life one day or 30 years after the annuity is taken out. But the price you pay is that your beneficiaries get nothing.

To provide for beneficiaries, annuities are available "with refund," or for "10, 15 (or any number) years certain." Let's look at these options. "With refund" simply means that at death, the unused portion of the premium paid is refunded to the beneficiary in a lump sum. The payment is determined by subtracting from the original premium the amount of guaranteed income paid out. "Ten years certain" means the income is paid for a minimum of 10 years. In other words, should you die after receiving only two payments, your beneficiary will receive the income or a further eight years. The principle is the same for a joint annuity; if the second person dies after only two annuity payments, the beneficiary will receive the remaining eight. Of course, in either case, the income is guaranteed for the life of the insured parties. Just fill out the Request for an
Investment Proposal form

An Advantageous "Bank Account" With Your Swiss Insurance Company

Most international investors finance these programs by single deposits. Many have chosen to dollar-cost-average into these investments by making annual deposits and many arrange for these payments through a Swiss bank account. However, you don't have to have one to pay your insurance premiums. Instead, there is another way to make your premium payments through a premium deposit account. This method has so many advantages, it is surprising that so few people know about it. In effect, a premium deposit account is an interest-bearing "bank" account opened at your insurance company. It has a distinct advantages over a regular Swiss bank account. It pays interest rates about 1% higher than bank deposit (savings) accounts. Moreover, there is no withholding tax on the interest; all payments are tax free. On the other hand, you cannot buy gold, securities, or anything else with this account. It can only be an interest-bearing Swiss franc account designed to make automatic premium payments. When the annual premium is due, it is simply debited from your account. You can predeposit as much as you want to your account (the minimum deposit is SFr100). Simply send the funds to your insurance company and use your policy number as you would your bank account number. By the way, as with a bank account, you'll receive an annual statement of your premium deposit account. One final point. Since insurance companies make surcharges of 2%, 3%, and 5% for semi-annual, quarterly and monthly premium payments respectively, you should simply stick with annual payments and use your premium deposit account for small deposits during the year, whenever you feel the exchange rate is particularly favorable or if you simply have extra cash available. One of the unhappy facts of financial life in a lawsuit-happy society such as the United States is the increasing danger of being sued. And if you should have the misfortune to wind up on the receiving end of some courtroom debacle, it could easily cost you your life savings. One of the best ways to protect yourself against such a calamity is to invest in a vehicle that will be beyond the reach of North American courts. One such vehicle is a Swiss annuity.

Swiss annuities can even be used to shield assets from a bankruptcy proceeding. That is because the rights of an insured U.S. person subscribing to a Swiss annuity policy are deemed to be located at the domicile of the Swiss insurance company -- that is, Switzerland, not the United States. Even if a U.S. court specifically orders the seizure of assets in a Swiss annuity -- or orders that they be included in, say, a bankruptcy settlement -- such an annuity will be protected under Swiss law. The only way a creditor can seize such an annuity is if the purchase of the policy -- or the designation of the beneficiaries -- is found to be a fraudulent conveyance under Swiss law.

Fraudulent conveyance takes place only: (1) if the insured person bought the policy or named the beneficiaries less than six months before the bankruptcy decree was issued -- or six months before some other collection action; or (2) if the insurance policy was bought or the beneficiaries chosen with the clear intent of damaging creditors. Just fill out the Request for an
Investment Proposal form

Of course, such intent cannot be proven if the policy was purchased and the beneficiaries named at a time when the insured person was solvent or when no creditors claims were outstanding. Nor can it be proven if your policy is not written for an excessively large sum relative to the insurance needs of your family. Another item that can ake an important difference in the amount of asset protection a Swiss policy provides is the designation of beneficiaries. Beneficiaries may be named on a revocable or irrevocable basis. As long as your beneficiary is your spouse, it doesn't matter whether he or she is named on a revocable or irrevocable basis. In either case, your asset protection remains intact. However, if your beneficiary is a third party (that is, neither a spouse nor a descendent), the designation must be made on a irrevocable basis. If not, the policy can be seized by a creditor. Note that an annuity or life insurance policy can involve up to four parties, each of which can be in a different country or jurisdiction. The four parties are:

the policy owner or policyholder. He chooses the policy options and designates the beneficiaries who are paid upon the death of the insured person. The policyholder may be an individual, a corporation, or a trust.

the beneficiaries. These may be individuals, corporations, or trusts. However, if asset protection under Swiss law is your concern, your beneficiaries should only be individuals -- preferably your spouse and/or children.
the premium payer. This may safely be an individual, corporation, or a trust.


Swiss Fixed Annuity and Endowment Policies:
A single premium deposit is made to the insurance company. It is also possible to make periodic payments or add-on payments. Annuity payouts may begin immediately or be deferred to begin after a number of years determined by the policy holder. An endowment policy pays out all accumulated earnings in a lump-sum payment pon maturity. An annuity policy pays out annuity payments, based on accrued interest, dividend earnings and a portion of the initially invested capital for life or for a fixed number of years as determined by the policy owner. Policies can be held on a single or joint life basis and in various currencies.

Swiss Variable Annuity:
A single premium investment is made to the insurance company. The unit-linked annuity is invested in a personally selected mutual fund(s) which can be changed during the duration of the policy. The returns on the variable annuity are determined by the performance of the funds held within the policy for its duration. Policies can be held on a single or joint life basis. The returns on a Swiss variable annuity may be higher than on a traditional Swiss annuity but the risk factor is higher as well since investments are made in mutual funds and earnings are not guaranteed.

Liechtenstein Insurance Wrappers:
The insurance wrapper provides an insurance policy containing your own individual investments, commonly a managed stock trading account (vs. a mutual fund), a more costly structure where returns are determined by the performance of the held investments. Returns are not guaranteed and the risk can be high. The main goal of an insurance wrapper is to protect the contained assets from bankruptcy and litigation judgments should the need arise in the future.

U.S. Citizens

Usually at this point there would be a little note in an investment report saying that we are sorry but this investment is not available to readers who are citizens or residents of the U.S. In the case of Swiss annuities, however, we are pleased to tell you that they are available. They can be legally purchased by Americans, and here are some unique advantages to a U.S. purchaser.

Difference between US and Swiss annuities

Type - U.S Annuties Swiss Variable Annuities
1. Privacy noyes
2. Asset Protection noyes
3. Diversification noyes
4. Investment Choice yes yes
5. Liquidity yes yes
6. Tax deferral yes yes

A Swiss annuities can be placed in 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.)

Just fill out the Request for an
Investment Proposal form

Putting Your U.S. Pension Plan into International Investments

U.S. law requires that assets in pension plans be physically held by a trustee in the United States. For two products -- foreign currency certificates of deposit and Swiss annuities -- a service is available that will let you place these products in your U.S. IRA or pension account. Although international investors can handle their investments in Switzerland themselves, by far the most practical way to enter the Swiss financial markets and the opportunities they offer is to send a letter to a Swiss insurance broker who specializes in foreign business. They can provide you with all the information you need to make he investment choices that are right for you. Few transactions can be concluded directly by foreigners either with a Swiss insurance company or with Swiss insurance agents. Legally, they can handle the business, but foreign investors aren't their usual clientele.


Starting January 1, 2001, a new withholding tax system took affect in the US. US investors are no longer allowed to make or hold investments in US domestic securities through foreign banks without duly declaring and paying taxes on the gains. For countries with strict banking confidentiality where extended reporting is not feasible, banks are required to levy a 31% backup withholding tax on US investors who fail to disclose their taxable holdings. The tax applies to interest, dividends, and all proceeds from sales and redemption’s of US domestic securities. One of the main features of the new system is the classification of banking clients as either US persons or non-US persons. US persons are defined as persons having US itizenship or US residence status, and entities either organized in the US or organized by US persons. This includes dual citizens and green card holders. If you have accounts with other foreign banks, you may have already received the identity declaration orms. For other foreign bank accounts you may be holding in which you may want to keep private, you should instruct those banks to dispose of all US domestic securities. Swiss annuities are not affected by the new regulations.

Swiss vs. American variable annuities

How does a Swiss variable annuity differ from a U.S. variable annuity?
Low, low fees. If you've been turned off by variable annuities in the U.S. because of the hefty annual fees -- 2.09% on average, or more than 40% higher than the fees on the average mutual fund -- our Swiss variable annuities come with maximum annual charges of only 0.6%, or less than half of those for the average mutual fund. This, along with tax deferral, ensures you maximize the power of long-term compounding for your investments.

Full asset protection. Some states, including New York, Florida, and Texas, protect some assets in variable annuities from creditors. Swiss variable annuities offer 100% asset protection, independent of which state you live in. If you are susceptible to lawsuits, you should know that asset protection of variable annuities is provided under time-tested Swiss insurance and annuity laws. The law simply states that if you designate your spouse or children (or a third party irrevocably) as beneficiaries, then the policy may not be seized by your creditors. You don't need complicated legal structures. Compare this with offshore trusts.

Swiss privacy. Then, of course, there's the privacy only Switzerland offers. Like a Swiss bank account, your investment is protected from prying eyes. It is not reportable as a foreign financial account and no U.S. excise taxes are incurred, unlike with other foreign annuities. Information about your investment may not be released to any third party, unless you have committed a crime punishable under Swiss law. This includes tax fraud but not tax evasion.

Safety - In the U.S., investors have to do their homework when it comes to choosing an insurance company. A company may offer extremely attractive products, but may not, in the end, be able to stand behind them. In the more than 150-year history of Swiss insurance, in stark contrast, not a single company has had to forfeit on its obligations. This fact alone would make a Swiss annuity investment a pretty safe bet. But for added protection, your investments are held in segregated accounts, which would remain separate from the insurance company's own accounts in case of bankruptcy.

No Swiss taxes. You will never have to pay Swiss withholding taxes, unlike with a Swiss bank account. For that matter, no inheritance, wealth, or any other taxes.

Global diversification. Most experts will agree that global diversification makes sense, and particularly at a time when U.S. markets are at record peaks. At least 40% of your entire portfolio should be invested in markets other than your own for optimum performance. All subaccounts offered in our variable annuities are well-diversified in global equities, bonds or currencies.


No Excise Tax
Unlike many other foreign annuities, Swiss annuities are not subject to the 1 percent U.S. excise tax on the purchase of foreign annuity and insurance premiums. This is a by-product of the adoption in 1998 of a new Swiss-U.S. Double Tax Treaty and applies to premiums paid by a U.S. citizen to an insurance company domiciled in Switzerland.

Income on Foreign Fixed Annuities Can Be Taxable

Most foreign fixed annuities are no longer tax deferred in the United States (see Internal Revenue Service regulations, “Tax Treatment of Certain Annuity Contracts," Internal Revenue Code (Code) Sections 163(e) and 1271 through 1275). Under the rules of Code Section 1275, a Swiss fixed annuity is a debt instrument, that is, a ,,promise to pay a sum certain,“ in addition to being an insurance contract. Accordingly, the owner of a Swiss fixed annuity (as well as other foreign annuities that are seen as debt instruments) pays tax on the income that accrues, including currency gains if the annuity is denominated in a foreign currency.
Most tax experts agree that as a result of the loss of tax deferral, distributions prior to age 59 1/2, including loans against the policy, are not subject to the 10 percent penalty for early withdrawals. Thus it is possible to take tax-free withdrawals from a Swiss fixed annuity whenever the policyholder chooses.

lncome on Foreign Variable Annuities Can Be Tax Deferred

Death Benefits in Policy Do Not Make It a Debt Instrument The inside buildup of a foreign variable annuity continues to be tax free. The death benefits included in the policies do not make the annuities ,,debt instruments“ (promises to pay a sum certain) and, therefore, are not tax deferred under Code Section 1275. hey do not constitute debt instruments because they promise to pay a designated sum only if the owner dies. There is no guarantee of a particular sum if the owner cashes in the policy while he or she is alive.

In addition to the above criteria for determining whether a variable annuity is a debt instrument, two further conditions need to be met for tax deferral.

In addition to the above criteria for determining whether a variable annuity is a debt instrument, two further conditions need to be met for tax deferral.

1. The Variable Annuity Must Not Be Self-Directed . The income from a variable annuity is tax free if the owner (or his or her adviser) is not managing the investments himself or herself (a so-called "self-directed" annuity). Owners are permitted to choose investment categories, but under the self-directed annuity rules they may not choose the actual investments. If they do, they are treated as the owners of the underlying assets and the income generated by those assets is taxable.

2. The Variable Annuity Must Be Adequately Diversified . Finally, the inside buildup of variable annuities is tax free if the underlying portfolio is adequately diversified as defined in the U.S. tax code. An account meets the ,,diversification rule“ if

a. No more than 55 percent of the value of the total assets of the account is represented by any one fund;
b. No more than 70 percent of the value of the total assets of the account is represented by any two funds;
c. No more than 80 percent of the value of the total assets of the account is represented by any three funds; and
d. No more than 90 percent of the value of the total assets of the account is represented by any four funds.

To make certain that variable annuities comply with the diversification rule at all times, portfolio rebalancing is required on at least a quarterly basis. The tax-deferred status of Swiss variable annuities has consequences for early withdrawal just as do U.S. contracts. Swiss variable annuities, however, offer a combination of asset protection, a choice of asset allocation strategies based on an investor‘s risk profile and other needs, and tax deferral for U.S. investors. This makes them ideal long-term investments that can harness the power of compound growth for a retirement portfolio.

Time to switch

If you already own a variable annuity from a US company, now is the time to consider making a tax-free exchange (called a 1035 exchange) to a Swiss annuity. It's as easy as switching between your American annuities. The difference is what you get after: the advantages you only find in Switzerland.

What choice of investments do I have for a Swiss variable annuity?
As with any portfolio, strategy is all-important. The strategy you pick has to meet your personal requirements and risk profile. A Swiss variable annuity portfolio can be constructed in four different styles with the following expected returns and risk (volatility): All subaccounts have a well-diversified currency allocation, and thus bring you the full benefit of global diversification. That is, should dollar-denominated assets fall in value, your portfolio will have other currency holdings to mitigate in full or in part the effects of such a fall.

Due to its limited volatility, the Bond Subaccount is suitable for highly risk-averse investors or those seeking to secure earnings over time. The Income Subaccount has a conservative investment style, but takes higher risk than the Bond Subaccount for steady income growth. The Balanced Subaccount maintains a more or less even mix of bonds and equities, neither too hot nor too cold. The Growth Subaccount is for long-term investors willing to accept greater short-term price fluctuations for their holdings.

Just as you wouldn't wear a sweater in the height of summer, should your needs change, you have the option of changing your investment style. For example, closer to retirement you may want to switch from a growth to a bond or income subaccount to reduce your portfolio's volatility.

How diversified are my investments in a Swiss variable annuity?

The inside build up of a variable annuity is tax-free only if the underlying subaccount is adequately diversified within the meaning of the U.S. tax code. An account meets the diversification requirement if:
a) No more than 55% of the value of the total assets of the account is represented by any one fund;

b) No more than 70% of the value of the total assets of the account is represented by any two funds;

c) No more than 80% of the value of the total assets of the account is represented by any three funds; and

d) No more than 90% of the value of the total assets of the account is represented by any four funds.

This is the so-called "diversification rule" which all foreign variable annuities must adhere to for U.S. tax-deferral status. In this particular case, we have to admit, U.S. strictures on foreign products benefit investors by guaranteeing that your risk does not increase over time. Normally, it's precisely those riskier investments that take an ever-increasing share of your portfolio.

To make certain that your Swiss variable annuity complies with the diversification rule at all times, we re-balance your portfolio on at least a quarterly basis. Just fill out the Request for an Investment Proposal form

Creditor Protection

If potential creditors want to go after your Swiss annuity investment, they will have to think twice. Collection proceedings in Switzerland promise to be tough, time-consuming and expensive.

Tough because private ownership and wealth preservation are principles traditionally respected in Switzerland. Time-consuming because the case could go all the way up to the Swiss Federal Supreme Court. Expensive because creditors will have to deposit funds for court costs and attorney's fees.

How does protection under Swiss law compare with that for offshore trusts?

Not every offshore center is the same with regard to taxes. Swiss protection comes tax-free. Non-residents will never have to pay any Swiss taxes whatsoever. The basis of a trust is the transfer of ownership to a trustee. In contrast, a Swiss annuity holder is the owner and retains full control so long as he or she remains solvent. swiss protection lets you be in control.
Lastly, Swiss protection is easy to obtain in comparison to trusts. You won't need expensive lawyers, nor expensive structures. Just fill out the Request for an Investment Proposal form. That easy.

Obstacle course for creditors.

9 obstacles for creditors attempting to get to your Swiss annuity.

1. Creditor must know a policy exists in Switzerland and which company is the contractual partner.
2. Creditor must come to Switzerland, hire a Swiss attorney, who works on an hourly fee only (average US$250 per hour), and make an initial deposit of US$1,000 for his services.
3. A Swiss lawyer must accept the mandate and try to obtain an attachment order.
4. Creditor must have a specific claim, based on an enforceable judgment or on a recognition of debt.
5. Cantonal authority must order the attachment of the policy.
6. Creditor must deposit funds for court costs.
7. Policy owner files a protest and within 10 days creditor must file a civil suit against the policy owner.
8. Creditor must prove that fraudulent conveyance is involved.
9. Swiss court must declare policy invalid.

The Security Provided by Swiss Law

Many offshore islands these days boast of having special laws and regulations that enable investors to create a variety of trusts that supposedly will protect the investor's assets. Unfortunately, since such legislation is not part of the actual governing laws of the country, but something designed to attract foreign money, it becomes clear that such laws are enacted merely to create a phony trust, the purpose of which is to defraud creditors and ignore true legal title. In fact, most of these trusts are merely used as legal titles to assets that are left in the U.S. Since the assets remain in the U.S. in brokerage accounts or similar institutions, it is relatively simple for American courts to seize them by declaring the so-called offshore trust a sham. In such a case, the foreign law is irrelevant, as the U.S. court uses the law of the state it is located in to determine the issue. Swiss law governing the financial industry, however, is a part of the country's legal tradition. The laws were not enacted to provide some type of "underhanded" asset protection, but grew out of Switzerland's history and customs. Swiss annuities are not protected by Swiss courts so that investors might use them to ignore creditors, but rather they have been written for the Swiss people. The Swiss have always supported the idea of wealth building. Annuities are just another means to that end.

Maintaining a "Bank Account" with a Swiss Insurance Company

There are many ways to finance the various annuities you may purchase through Swiss insurance companies. Many investors simply make single deposits as necessary, while others decide to use the cost-averaging method. While some others make their payments through Swiss bank accounts, this isn't necessary. Many prudent investors feel that paying through a Swiss bank account eliminates one of the major advantages of Swiss insurance and that is privacy. Maintaining a Swiss bank account is reportable under U.S. laws.

A premium deposit account is an alternative. A premium deposit account is an interest bearing "bank" account that you open at your insurance company. These accounts offer several important and special features. A premium deposit account is not reportable to tax authorities because deposits are made to an insurance company and not a bank. Premium deposit accounts also pay interest rates about a percent higher than the typical savings accounts that banks offer. In addition, you pay no withholding tax on interest and all payments are tax free.
There are no restrictions on how much you can deposit in a premium deposit account, although the minimum deposit is SFr100. To open the account, you just send the funds to your insurance company, and instruct them that you want to obtain a premium deposit account. You would use your policy number in the same way you would use a bank account number. You will receive an annual statement summarizing your account. It is advisable, although certainly not required, that you make annual payments from your premium deposit account. Swiss insurance companies make surcharges of 2%, 3%, and 5% for semi-annual, quarterly, and monthly premium payments respectively. By making an annual payment and using your premium deposit account for small deposits throughout the year, you reduce the amount of surcharges. You can also save by making deposits when the exchange rate is most favorable. There are some limitations to premium deposit accounts, however. You cannot purchase gold, securities, or other investment products from a premium deposit account. It can be used only as an interest-bearing Swiss franc account from which you can authorize the making of automatic premium payments. When the premium on an annuity is due, the insurance company merely deducts the payment from your account.

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Most Frequently Asked Questions about swiss annuities

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Untold Secrets of Asset Protection using Swiss Annuities

July 2005 /

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