Bob Bauman’s
June 2011
Swiss Fixed Annuities
An Assured, Inflation-Proof
Investment That Guarantees a
Life-Time Income
Even as we go to press, business news reports describe how foreign exchange traders worldwide have abandoned their recent belief that the U.S. dollar was regaining some of its lost vitality.
So if not the dollar, where are those money experts going to go? To the more reliable Swiss franc and the euro, of course, both of which they say will continue to rally while the dollar slides again.
In this time of a wildly fluctuating, declining U.S. dollar, you would do well to follow suit. And one of the best ways to do this is with investment that produces a guaranteed income free from the ravages of the diminished dollar.
That investment is a Swiss Fixed
Annuity.
The Flexibility of a Bank
Account… Without the Bank
While Swiss banking often gets the spotlight (for reasons both bad and
good), its other financial institutions and insurance companies offer a broad range of services that, in some cases, approach the flexibility of a bank account.
Inside This Issue What Swiss Law
Guarantees You.. Page 3 A Good Income
Play... Page 5 6 Reasons to Buy a Multi-Currency Annuity Certificate... Page 6 Enjoy Exemption from Swiss Taxes.... Page 11
Indeed, many Swiss residents use their insurance company as their only financial institution.
In the entire history of Swiss insurers, no life insurance company ever has failed to meet its obligations or been forced to close its doors.
Swiss bankers cannot boast the same accomplishment.
Besides security, Swiss insurance policies – including annuities – have other important advantages:
Swiss law affords annuities
1. special
asset protection, exempting them
from enforcement of foreign court judgments, including bankruptcy. Insurance and annuity accounts 2.
are not subject to the Swiss 35% withholding tax on earned bank
interest. They are also exempt from all other Swiss taxes, including on income, capital gains, and inheritance taxes.
Swiss annuities generally offer higher interest rates than 3.
Swiss bank accounts. In 2000-2010, Switzerland’s average bank interest rate was 1.52% with an historical high of 3.50%
percent in June 2000 and a record low of 0.25% in March 2003. That low is matched currently at 0.25%. However, the current interest rate paid on Swiss annuities (May 2011) is about 1.75%.
What all this means is that a Swiss fixed annuity actually is both a savings plan and a pension fund all wrapped up in one policy.
Protect Your Assets Against Future
Claims
One of the primary benefits of Swiss-issued annuity contracts is that you get a very high level of asset protection against claims of future creditors.
What Is a Fixed
Annuity?
The term “fixed annuity”
describes an insurance contract in which the issuing company pays you fixed dollar amounts for the term of the contract, usually until your death. At the start of your fixed annuity, you pay an agreed upon amount of dollars to the insurer. This is known as the “single premium.” In return, you receive a policy.
After a deferment period, the policy pays out a guaranteed income for life. These payments consist of partial return of principal plus some guaranteed interest and non-guaranteed dividends.
This is particularly important in this age of constant
litigation, bankruptcy, divorce and crime, where it has become increasingly difficult to preserve your hard-earned wealth.
In 2002 (the last year statistics are available), there were over 16 million civil lawsuits filed in the U.S. with over $40 billion in awards. No doubt those numbers have increased.
In 2010 there were nearly four divorces for every one thousand of the U.S. population.
With odds like that, your chances are high that someone will go after you in a court of law. If they do, even if you are innocent of their claims, you have no guarantee that the potential lawsuit verdict will favor you. It is simply impossible to know how a jury or judge will rule.
To truly protect your assets from any seizures resulting from such claims, you must place them in a legal holding structure that is fully protected by law. That is the guarantee Swiss law affords for the fixed annuity.
What Exactly Swiss Law
Guarantees You
The degree of asset protection Swiss insurance affords you is unparalleled anywhere else in the world.
It holds that simply owning Swiss life insurance or an annuity, absent other evidence of business activity within the country, is not a sufficient basis for a Swiss court to honor a foreign legal judgment against you or your assets.
In particular, Swiss law offers significant asset protection for life insurance products, including annuities. They are not subject to collection remedies directed against you and the policies are not deemed to be a part of your bankrupt estate.
This means that if a U.S. or other foreign court authorizes the attachment or levy against a Swiss policy, whether in bankruptcy or otherwise, a Swiss court will 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
creditors cannot reach the annuities. And Swiss courts repeatedly and strictly uphold these protective rules.
Swiss law also offers special added protection for annuities naming spouses and children as beneficiaries.
Recognized by the Swiss Federal Office for Private Insurance Matters, these protections apply to all life insurance policies,
including annuities and those linked to mutual funds and derivatives. Finally, Swiss insurance laws provide investors with unique
privacy features that are unavailable in other offshore investments. Ultimately, Swiss fixed annuities guarantee you unmatched asset protection. They also present you with flexible estate planning options…
Enjoy Flexible Estate
Planning Options
When you originally buy your annuity you are free to name the beneficiary or beneficiaries who will receive payment in the event of your death.
One or more of these beneficiaries may be you and/or private individuals, companies, trusts, or private foundations.
Then you determine when the pay-out should occur, as when limiting it before the beneficiary reaches a certain age.
If the beneficiary clause is not irrevocable, you may adjust or change your beneficiary designation at any time.
As the insured person, when you pass away, the Swiss insurer does not need a power-of-attorney, nor a last will or certificate of inheritance to make the necessary payment.
Under Swiss law, your beneficiaries get immediate access to the funds and the insurer makes payments according to their instructions. For beneficiaries to claim payment, they must present the original policy and a death certificate.
In case of a joint annuity, the insurance company will continue to pay the income to the surviving annuitant until his or her death.
But, aside from unmatched asset protection and estate planning flexibility, Swiss fixed annuities also offer unique protection against a declining dollar.
A Good Income Play
for Savvy Investors
A Swiss fixed-annuity, denominated in one of the world’s most reliable currencies, the Swiss franc, is a good income play. That is because, as the dollar depreciates, your annuity income appreciates.
For example, 64-year-old Mr. Smith invests 100,000 Swiss francs (CHF) in a Swiss annuity. Every year, for the rest of his life, this annuity will repay him a guaranteed 4,623 Swiss francs.
His March 1, 2009 payment of 4,623 Swiss francs would have
converted into US$3,952. Today, his 4,623 Swiss francs annuity payment would convert into US$5,268.
That is $1,316 more cash earned with no added effort… all because the Swiss franc has appreciated 27% in two years against the faltering U.S. dollar.
The Swiss franc generally has reflected the state of Swiss banking - strong, valuable and unaffected by inflation and monetary fads. Since 1971, the franc has appreciated nearly 400% against the U.S. dollar.
The bottom line is, when you invest CHF 100,000 (the usual minimum required) in a Swiss fixed annuity, with immediate payments over a 10-year term, you will enjoy greater spendable income when you later convert those Swiss francs back into the dollar at a much better exchange rate.
How Your Investment is Managed
When you buy a Swiss fixed annuity, the insurer assigns you an
account manager. This person has the power to choose any investment he deems appropriate, within your general instructions.
He can pick from the entire global investment universe, without SEC restrictions or other rules that would otherwise apply to you as a U.S. citizens.
This allows him to place the deposit you make into your fixed annuity into all traded mutual funds, hedge funds, stocks, bonds, structured products and the like.
You can choose initially, and later change, the overall investment strategy, but under U.S. law you cannot select the specific underlying investments or manage them yourself.
Under this arrangement the insurer is the owner of the
investments. You own an annuity policy with a value linked to the underlying portfolio of investments, but you don’t own the individual investments themselves.
Swiss and other foreign insurers have established special
arrangements with the successful private banks and asset managers in Switzerland and the European Union, giving you assurance that there is an investment strategy available to suit your needs. After all, the insurer wants to make profitable investments, as much as you do.
That is why Multi-Currency Annuity Certificates are particularly attractive…
Multi-Currency Annuity Certificate:
6 Reasons to Get One Today
Multi-Currency Annuity Certificates are one of the most innovative fixed annuities now available. Six factors make this particular
certificate attractive…
#1: Flexibility
As the purchaser of a Multi-Currency Annuity Certificate, you can modify the benefits or change your beneficiaries at any time. Also, the owner can be different than the insured person and the beneficiary can be a legal entity, such as a trust.
The annuity can cover two insured persons using a “second to die” option.
Like a normal Swiss fixed annuity, your certificate can be a life or fixed-term annuity and can be immediate or deferred.
#2: Beneficiary Protection
When you make your spouse, children or grandchildren beneficiaries, under the Swiss Federal Law on Insurance Contracts, none of your
creditors can attack this designation.
#3: Currency Choice
At any time, you can change the currency your certificate is denominated in. This allows you to benefit from exchange rate fluctuations.
Currencies available are the: Swiss franc
•
British pound sterling • Euro • U.S. dollar • Canadian dollar • Australian dollar •
New Zealand dollar •
And the Norwegian krone •
#4: Flexible Annuity Payment Options
A Multi-Currency Annuity Certificate guarantees you the right to choose, at any time, an annuity paid either monthly, quarterly, half-yearly, or annually for the rest of your life. The insurer will continue to pay this annuity even after the original investment has been used up.
A loan is available to you at any time before income payments start. Such a loan won’t affect accruals of guaranteed interest or bonus on the basic deposit.
#5: Death Lump Sum
On your death, the insurance company will pay your beneficiaries the total amount of the funds you paid in, plus compound interest accrued. If you die during the annuity payment period, the company will still pay the remaining capital.
#6: No Swiss Tax
Switzerland, you pay no Swiss tax. This guarantees liquidity of your money because you can reclaim the invested amounts at any time without incurring a penalty.
Whether you select a Multi-Currency Annuity Certificate or other Swiss fixed annuity, they all have one important similarity: they are easy to open…
Simply Select the Type of Annuity
That’s Best for You
There are two general types of Swiss fixed annuity plans: An
1. immediate annuity, commonly called a Retirement Income
Annuity because it allows you to begin receiving retirement income almost immediately after you pay the premium.
And a
2. deferred annuity, which is designed for accumulated
growth. In this case, you choose when and for how long you want to get payments. For example, you could invest $100,000 as
a premium now and opt to only start getting income after ten years. During the accumulation stage, your principal would grow with compounded interest, dividends and currency gains. This arrangement works best if you are planning future financial aid for the education of grandchildren or income for your spouse. Whichever type of annuity you select, you can choose your
preferred duration – “fixed term” or “lifetime.” But the significant advantage of the lifetime option is that the insurance company will continue to make payments, even after the depletion of your initial deposit.
If you want the right to cancel the annuity at any time, simply select the “with refund” option.
How to Take Advantage of the
Strongest, Safest Asset Protection
Vehicle in the World
If you are interested in acquiring a Swiss fixed annuity, simply begin by signing an application form with a foreign insurer.
It is fully legal for Americans to buy and own foreign insurance and annuity policies. However most foreign insurers are not licensed to operate and market their products within the United States.
This is because each of the 50 American states individually regulates most aspects of insurance.
Since foreign insurers cannot operate within the U.S., an American purchaser physically must go abroad to buy the policy.
After you submit your signed application in Switzerland, (or in a mutually agreed upon meeting place such as Canada,) the insurance company conducts a due diligence investigation. Once satisfied, they notify you of your approval. Then you instruct your U.S. bank to wire the agreed upon amount of funds to the account of the foreign insurer.
The insurer opens your account with a Swiss- or European-based bank in their name, on behalf of your annuity.
Thereafter, you pay the necessary taxes…
The U.S. Taxes You Will Pay on a
Swiss Fixed Annuity
When you buy a new foreign fixed annuity (or life insurance
policy), the IRS typically levies a one-time 1% federal excise tax on the contract… unless the terms of a U.S. tax treaty with the issuing country eliminates that 1%.
Fortunately for Americans, under the terms of the 1998 U.S.-Swiss tax treaty (revised in 2010), the Swiss fixed annuity is not subject to this 1% U.S. excise tax.
You must file IRS Form 8833 (Treaty-Based Return Position Disclosure) to claim these treaty benefits.
You also pay no U.S. taxes on investment gains you earned on an insurance policy when you exchange it for a new life insurance or annuity policy, including a Swiss fixed annuity. Such swaps are known as “1035 Exchanges” (named after Section 1035).
For the 1035 Exchange to apply, you must be insuring the same person when you make change from one policy to another.
and hold it within your IRA at a U.S. custodian bank or institution that administers plans.
However, despite all these tax concessions, the IRS treats foreign
fixed annuities as a “debt instrument”. That means, since 1996, you can
no longer defer tax on fixed annuity income.
You must pay these taxes annually, just as a U.S. person pays
taxes on ordinary earned income. In the case of Swiss fixed annuities, your Swiss insurance company will provide an annual statement on
earnings and interest accrued to file with your U.S. taxes. Distributions prior to age 59½, including loans against the
policy, are not subject to the IRS 10% penalty for early withdrawals. Thus, it is possible to take tax-free withdrawals from a Swiss fixed annuity whenever you choose prior to age 59 ½.
Only properly drafted variable annuities allow tax deferral under U.S. tax law, meaning you don’t pay taxes on interest and dividends until you withdraw the money.
Your issuing Swiss insurance company, as the withholding agent for U.S. taxes, will ask you to complete a Certificate of Foreign Status of Beneficial Owner for U.S. Tax Withholding - Form W-8BEN. They will help you do this.
Over all, if you compare the tax treatment of U.S. annuities to that of Swiss fixed annuities, it is clear that the latter is far more beneficial to you financially. Take a look at the table below…
Tax Treatment of U.S. Annuities vs. Swiss Fixed Annuities
U.S. Annuities Swiss Fixed Annuities
Earnings in accumulation phase Tax-Deferred Taxable
Partial withdrawals Taxable Tax-Free
Full liquidations Taxable Taxable
Annuity payments Taxable, with penalties Tax-Free, no penalties
Premature withdrawals (before age 59 ½)
Taxable, with penalties Tax-Free, no penalties
Loans Taxable, with penalties Tax-Free, no penalties
Loan interest Never tax-deductible Can be deductible
Note: This information may change if the U.S. or Switzerland changes
You also benefit from an exemption from all Swiss taxes…
You Pay No Swiss Tax
Swiss law treats annuities, fixed or variable, as life insurance policies. This status exempts them from all Swiss taxes.
Plus, Switzerland offers special tax incentives to foreign annuity investors by exempting non-resident annuity buyers from all Swiss income, capital gains, and inheritance taxes on an annuity.
One other inducement: annuities and other insurance contracts are exempt from the 35% Swiss withholding tax on interest payments.
Report Any Offshore Insurance
The Foreign Account Tax Compliance Act (FATCA), which is part of the HIRE Act, requires you to report offshore insurance and annuities if their value is $50,000 or more.
However the HIRE Act rules are not in final form at this writing and do not take effect until January 1, 2013.
Also, new U.S. reporting requirements relating to offshore insurance are pending in the U.S. Treasury. The proposed new rules are similar to those the IRS imposed on offshore banks, such as filing the IRS Form W9.
As my colleague, wealth preservation and international tax
planning expert Mark Nestmann has explained in detail, proposed rules which the Financial Crimes Enforcement Network (FinCEN) announced, greatly expand the scope of investments that you must report annually.
Even before any new reporting rules, U.S. persons have been
required to submit the Foreign Bank Account Report (FBAR), known as
the U.S. Treasury Form TDF 90.22-1, by June 30th each year.
Under new pending FBAR rules, an expanded definition of the term “other financial accounts” includes reporting “an account that is an insurance or annuity policy with a cash value.”
This squarely targets U.S. investors holding non-U.S. life insurance or annuity contracts.
The obligation to file the FBAR, in the case of life insurance or annuities, rests with you as the policyholder… not the beneficiary.
The bottom line: a Swiss fixed annuity is an assured, inflation-proof investment that guarantees a life-time income.
If you are interested in learning more about Multi-Currency
Annuity Certificate or other Swiss fixed annuities, contact Marc-André Sola, a distinguished member of the Sovereign Society Council of Experts. His contact details are:
Marc-André Sola, Managing Partner
NMG International Financial Services Ltd. Goethestrasse 22, 8001 Zurich, Switzerland Phone: +41 44 266 21 41 Fax: +41 44 266 21 49 Website: www.nmg-ifs.com
Email: [email protected] Until next month,
Bob Bauman JD
Publisher ...Erika Nolan Editor ...Bob Bauman JD Managing Editor .... Teresa van den Barselaar Graphic Designer ...Bruce Borich
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