OFFSHORE ANNUITIES A better way to get international diversification with less-complicated tax consequences could be an annuity from an offshore insurance company. We are not talking about fly-by-night, shell companies that might take your money and disappear (though there are many of those available if you are interested). We are talking about annuities sold by Swiss insurers who have been in business for many years. Unlike many of their U.S. counterparts, offshore insurance companies are financially sound. In 130 years not a single Swiss insurance company has failed, which is a claim that the United States cannot make. So safety definitely is available in offshore insurance policies. Offshore annuities (and whole life insurance) have essentially the same advantages of their U.S. counterparts. You get tax-deferred compounding of income until withdrawals from the policy begin. The annuity payments are taxed the same as payments from a U.S. annuity policy. Just be sure that the insurance company selling the annuity has an opinion letter from a U.S. tax lawyer stating that the annuity meets the tax-deferral requirements of U.S. tax law. If the company is not willing to provide an opinion letter or does not have one, it probably has little experience working with Americans and you will want to find another insurance company. Annuities also offer offshore tax advantages. Switzerland, for example, encourages the purchase of annuities. A nonresident will not pay income taxes, capital gains, or inheritance taxes on the annuity. In addition, insurance contracts are exempt from the 35% Swiss withholding tax on interest payments. Offshore annuities offer some non-tax advantages as well: International diversification. Some will let you select the currency in which the annuity is denominated; others, however, offer only one currency, so you gain or lose depending on currency swings. Privacy. True annuities are not be reportable as foreign bank accounts on your tax return. Protection from legal judgments. U.S. creditors will find it difficult or impossible to first locate your annuity and then try to collect against it. Again, ask for a legal opinion. Some advisers say that the offshore annuity offers little asset protection. When a creditor asks for a list of your assets, you must list the annuity or you will be guilty of perjury. Though the U.S. court system doesn't have jurisdiction to seize the annuity or order the insurer to transfer the assets to a creditor, some lawyers say that the court could order you to liquidate the annuity and give the assets to your creditors. The likelihood of this will vary from state to state and from contract to contract. A few states fully protect annuities from creditors; others give annuities little or no special protection. Swiss annuities have covered this by protecting annuities when an irrevocable beneficiary has been named, so no U.S. court order can have any effect, and you cannot be ordered to repatriate the annuity. High returns. Returns vary between policies, of course, and you should compare several of them. But you should be able to get an offshore annuity that credits your account with income based on market returns. The main problem with the offshore annuity will be the currency risk. If you are planning to retire in the country in which you bought the annuity, that probably is not a problem. Otherwise you might want to hedge the currency risk with an offsetting investment in a U.S. annuity, for example. Until recently many Swiss annuities were not a particularly good deal, with some high initial charges. That is no longer the case, and there are now some superb products available to American investors. 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, 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. 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 SFr 500 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. 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. Swiss Plus accounts earn approximately the same return as long-term government bonds in the same currency the account is denominated in (European Union bonds in the case of the ECU), less a half-percent management fee. 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. Some Swiss insurance companies do have major U.S. investments, so there is some possibility of the U.S. government attempting to freeze those assets to enforce a judgment, just as has occasionally happened with Swiss bank assets in the U.S. But the insurance companies do not operate branches in the U.S., while the Swiss banks whose assets were seized did have branches here. This would not usually be a concern to the ordinary policyholder, but if you are stashing a couple of million in allegedly stolen assets (or insider trading profits) it might be a problem. JML Swiss Investment Counsellors is an independent group of financial advisors. Since 1974 they have specialized in Swiss franc insurance, gold and selected Swiss bank managed investments for overseas and European clients. To date the group is servicing nearly 16,000 clients worldwide with investments through JML of more than 1 billion Swiss francs. Their services are free of charge to you because they are paid by the renowned companies with which you invest your money. Their commissions and fees are standard, and all transactions are subject to strict regulation by the Swiss authorities. All of their staff are fluent in English, and understand the special concerns of the international investor. They know about all the many little details that are critical to you as a non- Swiss investor, and have answers to your tax questions and other legalities. Contact: Jurg Lattmann JML Swiss Investment Counsellors Germaniastrasse 55, Dept. 212 8033 Zurich, Switzerland telephone (41-1) 363-2510 fax: (41-1) 361-4074, attn: Dept. 212.