Variable annuities and life insurance have a reputation as pretty boring investments. Yet, they’re some of the most flexible contracts available to achieve tax deferral, asset protection, and a degree of financial privacy. That’s especially true if you purchase an OFFSHORE life insurance policy or variable annuity.
Almost every state protects the death benefit of a life insurance policy or payments from an annuity from creditors. However, the cash value of a life insurance policy may or may not be exempt. And for distributions from an annuity to be protected, they must be payable to someone other than the contract owner; e.g., your spouse or partner. Even if a creditor can’t get at the money you have in an annuity during the deferral period, it may be able to attach the payments, once they begin.
State-law protections may not extend to alimony or child support, criminal fines, punitive damages, or federal tax claims, among other possible exemptions.
A key advantage of purchasing an offshore variable annuity or life insurance contract is that foreign law governs the contract. By selecting the appropriate jurisdiction, you can achieve a much higher degree of asset protection. Indeed, in a suitable jurisdiction such as Switzerland, Liechtenstein, or Nevis, an offshore variable annuity or life insurance contract can offer asset protection comparable to that of an offshore trust.
Offshore variable annuities and life insurance contracts provide numerous other advantages:
- Significantly increased privacy in comparison to domestic annuities;
- Tax-deferred access to offshore securities markets, including hedge funds and other offshore funds;
- Avoidance of possible foreign exchange controls; and
- Tax planning for U.S. citizens or long-term residents considering expatriation.
Numerous offshore commercial insurance companies offer variable annuities and life insurance policies to U.S. clients. However, if you have a significant amount of wealth to protect, you can create your own private offshore variable annuity and life insurance company. One way to accomplish this is through a structure called an "International Deferred Private Variable Annuity" (IDPVA).
Your IPDVA is custom tailored to your needs. It can stand alone to accumulate tax-deferred income, and provide asset protection and financial privacy for years to come. It can also capitalize an insurance company that, properly configured, can insure that the assets in the structure pass to your beneficiaries free of estate tax.
There are many other possibilities. An IDPVA can also serve as the centerpiece of a tax-deferred international structure. For instance, it can purchase your domestic or foreign business. The result: once properly structured, formerly taxable assets grow tax-deferred, for years, if not decades.
Your IDPVA can also capitalize an offshore intellectual property and critical information (IPCI) company. The IPCI company purchases intellectual property and licenses it back out. This structure can handle international licenses for copyrights, trademarks, patents, public appearances, etc. This is a cost-effective solution for licensing intellectual property abroad and deferring tax on the income.
An IDPVA can be cost effective if you have US$250,000 or more to protect. Costs start around US$50,000, including all supporting structures, agreements, and contracts. Operating costs are 1%-3% of the funds under management annually, including compliance with IRS reporting requirements, structure fees, and investment management fees.
Private annuity and in particular IDPVA arrangements must in all cases be custom-tailored under the supervision of a qualified tax attorney. Contact The Nestmann Group, Ltd. at for more information.
Note: The term "International Deferred Private Variable Annuity" and abbreviation "IDPVA" are registered trademarks.
Copyright © 2008 by Mark Nestmann
