By James Buchanan
We are all looking for a recession survival guide. You have worked hard for a long time and have grown your wealth but are you exposed (or worried about your possible exposure) to possible lawsuits, malpractice cases, nervous creditors or vengeful ex-spouses? If so, then a deferred variable annuity or Liechtenstein annuity might be for you, enabling you to take advantage of some of the strongest asset protection laws in the world. Deferred variable annuities were originally developed in Switzerland (by Swiss life insurance companies) and were known as Swiss Annuities. This form of annuity has now been further perfected to provide even more options by life insurance companies in Liechtenstein.
How Does It Work?
A deferred variable annuity is the best way to invest money, view it as a simple holding structure via which and investor is able to invest in a wide range of products such as shares, bonds, mutual funds or hedge funds to name a few. Virtually any investment can be held within the annuity so long as its value can be determined, including more exotic investments such as real estate, exchange traded funds or shares in the investor’s own private company.
Deferred variable annuities are insurance policies issued by a life insurance company and the assets of that policy are managed by a Swiss private bank. A deferred annuity is thus a contract in which the insurance company agrees to make a series of payments (for a fixed period or for life) in exchange for a single premium or lump sum investment. As the annuity is a deferred annuity, this means that the payments are deferred until sometime in the future, which is determined by the investor.
The first step for an investor is to take out a contract/policy with a life insurance company in Liechtenstein. The insurance company then opens an account with a Swiss private bank who then receives the policy from the insurance company. Legally the investor is the client of the insurance company and the insurance company is a client of the bank. The bank will manage the investor’s account as per their direction/strategy.
The value of the policy is the value of the underlying assets placed with the bank on the investor’s behalf. Legal entities (companies and trusts) and natural persons can be the policy owner or designated as beneficiaries. The life insured must of course be a natural person.
Benefits
Iron Clad Asset Protection
When an investor (the policy owner) purchases an insurance policy in Liechtenstein and irrevocably nominates a beneficiary (other than the owner) or nominates a spouse/descendant as revocable beneficiaries, the policy cannot be included in the owner’s estate for bankruptcy as it is no longer considered the owner’s asset.
Should the policy owner become bankrupt, ownership of the policy is, by law, transferred to the revocable beneficiaries automatically (provided they are spouse or descendants) or to the irrevocably nominated beneficiary. Liechtenstein also recognises unmarried partners in same sex couples. Hence, in bankruptcy the policy (and its underlying assets) is fully protected because only the beneficiaries, being the new owners, can give instructions to the insurance company. The original policy owner no longer has legal authority to redeem the policy.
There are also anti-duress provisions within Liechtenstein law that provide protection if a policy owner is forced by a court to revoke a beneficiary designation or cancel a policy. If the insurance company receives a letter/request from a policy owner revoking the beneficiary designation or cancelling a policy to comply with an order from a foreign court, the insurance company may come to the conclusion that the instructions do not express the owner’s true intent as they were coerced by legal process. Under the law, the insurance company cannot follow the owner’s instructions.
Should the insurance company become bankrupt (which has never happened in Liechtenstein in over 150 years, unlike Australia) the insurance policies assets cannot be used to meet the insurance company’s financial obligations. The policy assets are segregated from the insurance company’s for the specific purpose of funding the insurance policy.
Please also note that the asset protection benefits are not available in criminal cases.
How Soon Are You Protected?
Liechtenstein has a law for fraudulent conveyance (defined as illegally transferring property to another party in order to defer, hinder or defraud creditors), which refers to the idea of purchasing an insurance policy before problems arise. That means: plan early. If no debt collection proceedings are issued against you (the policy owner) within one year of purchasing a policy or naming a beneficiary then the policy will be fully protected. That is, your assets will be safe if you are solvent when you purchase a policy or name a beneficiary.
Privacy Protection
Liechtenstein has had specific asset protection laws since 1926. The insurance secrecy laws are comparable with banking secrecy laws in Switzerland. That is, no information is provided to any third party (natural person or legal entity). Insurance companies are forbidden to disclose any information on the policies they issue to investigators without a court order or other legal process being brought before a Liechtenstein court (and being successful).
Diverse Investment Options
With a deferred variable annuity the range of investments available is virtually unlimited. The insurance policy can be opened in Australian dollars and all investments can be made in Australia if desired. But the policy can do so much more because it can invest in any tradeable instrument, anywhere in the world, as long as an accurate value can be determined. This means that you can purchase shares, managed funds, hedge funds, etc. More exotic investments are also possible, such as shares in your own company, property and sometimes even artwork or collectible cars. The policy investments can also be in any currency you wish (Australian Dollar, US Dollar, Euro, Pound, Swiss Franc, Peso, Rupiah, etc) which can spread investment risk or provide greater potential for a return through currency appreciation.
Liquidity is also important when making investments. With a deferred variable annuity, money can be added or withdrawn with a few days notice. It is even possible to borrow against the value of the deferred variable annuity. Also, should the entire capital within the policy be required, for example due to a change in financial circumstances, the deferred variable annuity can be cashed in and the funds returned to the investor very quickly (however, there could be tax implications in doing this).
Estate Planning
A properly structured deferred variable annuity is separated from a policy owner’s estate. Upon death, payment will be made to the beneficiaries as per the policy owner’s instructions after presentation of a death certificate. As the policy is not part of the estate, its proceeds cannot be used to meet any outstanding liabilities and there is no probate period or last will and testament required – it is merely paid out in either a lump sum or as annuity payments or a mixture of both.
Conclusion
While there are several asset protection strategies in use in Australia at present, such as purchasing property in a spouse’s name, using a family trust or investment company and even setting up a blind trust, there is a downside to them. Even though they all offer varying levels of asset protection, there is still the possibility that the structures can be seen through and voided in the case of legal action and all protection benefits would be lost. Also, full asset protection can take 5 – 7 years before it is available. With a deferred variable annuity from Liechtenstein, full protection is available after 12 months and the structure is bullet proof.
Should you have any questions, Forward Life is more than happy to answer them for you and to discuss how a deferred variable annuity can protect your assets either on its own or by complimenting your existing strategies. Remember, you have earned it and built it so now it is time to protect it so that it remains yours.
