The term annuity refers to two very different types of legal contracts with very different purposes. By tradition, the term annuity referred to what is more appropriately referred to nowadays as an immediate annuity. This is an insurance policy which makes a series of either level or fluctuating payments, paid out over a fixed number of years or during the lifetime(s) of one or two individuals, or in any combination of lifetime as well as period certain guarantees. The characteristic of the immediate annuity is that it is a vehicle used for distributing savings. A common use for an immediate annuity might be to provide a pension income to a person who is due to retire.

Another application for the term annuity came into being in the 1970s. This is generally identified as a deferred annuity and it is a vehicle for accumulating savings. This differs from the immediate annuity and causes confusion when people discuss annuities without carefully defining which type of annuity they have in mind.

Here are some reasons why annuities should be considered:

· More growth

· You stop having to pay taxes on accumulated interest

· An individual has the ability to develop an income with 100% tax dollars

· Annuities are SAFE!

· Annuities have guaranteed return

· The tax on Social Security can be reduced or eliminated entirely

· No attorney is involved

· The proceeds help avoid probate

· Annuities protect and immediately make proceeds available to the beneficiary

Although annuities are unglamorous and conservative, they are becoming one of the financial industry’s fastest growing products, with annual sales of domestic annuities i reported to be approximately $50 billion in the U.S. alone.

In other of parts of the world, the laws provide that cash value and proceeds of life insurance and annuity contracts issued in such jurisdictions are protected from creditors of the owner of the contract. In the U.S., the more protective laws in the states of Michigan, Illinois, Florida, and Texas. On the continent of Europe, the jurisdictions of Switzerland, Austria and Liechtenstein have similar laws.

For some people, the best annuity to have is a Swiss annuity. There are three basic plans in Swiss annuities:

* A deferred annuity similar to a term deposit, cash deposit, or guaranteed investment contract, with a fixed interest rate guaranteed for the length of the term. The term may be for any number of years. However, the length of term may be changed at any time. The term is known as the “accumulation period”, and during this period, it is referred to as a “convertible currency certificate”. At any time the plan may be cashed out, borrowed against, left to accumulate, or converted into a Swiss annuity.
* An immediate annuity has features in common with the North American annuity. It is purchased by a single deposit and immediately pays out a monthly, quarterly, semi-annual or annual benefit or pension. Unlike North American annuities, most Swiss annuities have a redeemable guaranteed cash value available at any time.
* A term certain annuity resembles American annuities, where a single deposit buys a plan that pays back a portion of the capital, plus interest, over a predetermined number of years. However, there is a variation of this type, a Swiss plan which pays the person insured for life if they survive the “years certain period”.

There are also a few other reasons why Swiss annuities are attractive.

· Swiss annuities are private.

· Swiss annuities are more secure than less regulated annuities.

· Swiss annuities can be denominated in strong Swiss francs (backed by gold), rather than weakening currencies.

· Swiss annuities are exempt from the 35% withholding tax imposed by Switzerland on foreign-held Swiss bank accounts.

· Swiss annuities are not considered a foreign account for purposes of U.S. reporting.

· As in all annuities, Swiss annuities are not taxed in the U.S. until the income is paid or the annuity liquidated.

· Swiss annuities are "no load" investments and are cancelable with only a small penalty in the early years. Moreover, Swiss regulations protect investors against under performance or overcharging.

· Finally, Swiss variable annuities produce yields equivalent with the best mutual funds, and are significantly better when their tax deferral and currency exchange features are factored. In fact, there have been several Swiss annuities which have produced 12-17% annual returns over the past few years.

The best feature about Swiss annuities that is often overlooked is that Swiss annuities cannot be seized by creditors of the policy owner or his beneficiaries.

According to Swiss law, Swiss insurance policies, including annuities, cannot be seized by creditors. They cannot be included in the estate of anyone who is bankrupt or subjected to any other foreign or Swiss court order for seizure or surrender. Judging from this general statement, you can see why Swiss annuities enjoy built-in protection against all creditors and judgments. Swiss annuities also appear to be safe from every type of litigation or creditor claim, including claims made by the IRS, governmental forfeiture orders, bankruptcy and even divorce decrees.

For example, is a U.S. bankruptcy court discovers that a Swiss annuity contract owned by the debtor is part of the debtor’s estate and issues a finding to that effect, then Swiss law will prohibit a Swiss court from issuing an order to transfer or liquidate the Swiss annuity in recognition of the foreign bankruptcy court order. Furthermore, Swiss law dictates that, as to any matters between the owner, foreign or domestic, of a Swiss insurance contract and the issuing Swiss company, the law of the domicile of the issuing company (Switzerland) applies.

However, that this does not suggest that a Swiss annuity is creditor-proof after one year has elapsed. Swiss law provides that any transfer affected by a debtor with the intent to damage his creditors can be avoided by his creditors if at the time of transfer:

· The recipient of the transfer (including the beneficiaries) knew of this actual intent, and

· The policy holder later files bankruptcy or has his assets subject to seizure and his other assets are insufficient to cover his liabilities, and

· A creditor files the fraudulent transfer claim within five (5) years after the transfer has taken place (purchase of the annuity).

So, as can be seen, having a Swiss annuity isn’t an “escape clause” in regards to creditors.

The question may be asked: Is having a Swiss annuity the be-all/end-all to protecting a person’s assets? This is something that an individual would have to decide for themselves. Another factor regarding Swiss annuities is that there is a low brokerage commission, which means that most insurance brokers are reluctant to sell them.

Finally, the most important thing to consider is that more capital can be accrued by having a good investment portfolio rather then having annuities.

If you would like more information regarding asset protection, trusts, family limited partnerships or the subject of this article please call or email our office.