By Marc Sola

Once you’ve accumulated a significant amount of wealth, what’s the best way to protect it? There are many options—ranging from an offshore account which offers privacy and a limited degree of asset protection, to an offshore trust which offers extremely strong asset protection, but requires that give up full control over your assets.

In Switzerland and Liechtenstein, we have a different approach to asset protection: we use insurance policies for this purpose. Foreign investors are specifically protected.

When you purchase a properly set-up life insurance or annuity policy from a Swiss or Liechtenstein insurer, your creditors can’t seize it—even if you declare, or are forced, into bankruptcy. Your privacy is also protected because like banks in these countries, insurance companies are forbidden to disclose any information on the policies they issue to investigators without a court order or other legal process.

Policies are available to foreign investors for an initial investment as small as US$50,000. And that money goes to work for you, immediately—unlike trusts, there are no big set-up costs required.

Another advantage of using an insurance policy for asset protection is that it’s relatively uncontroversial. In all countries, the purchase of an insurance policy is an ordinary and common transaction. Moreover, most countries don’t tax the growth of value inside insurance policies until it’s actually realized. It may also be possible for the policy and/or death benefit to be passed down to the policy owner’s beneficiaries, tax-free.

Insurance is also amazingly adaptable. In Switzerland and Liechtenstein, for instance, life insurance and annuity policies can also be used as holding structures to protect the value of an underlying investment portfolio. Fixed and variable annuities are available, along with variable universal life policies and various hybrid forms. Individually tailored policies set up to deal with your own special circumstances begin around US$250,000.

In some cases, a Swiss or Liechtenstein insurance policy can be used to replace a trust. In other situations, it can be used to complement a trust and to strengthen its protection. For example, assigning investments to an offshore trust is much cheaper and easier if they are grouped together under one policy. This may also simplify the tax treatment of the structure, and consequently, the reporting requirements, either through a reduction in the number of assets to be listed, or by fulfilling the conditions for tax deferral.  

Assets held within a policy are considered as being owned by the insurance company. This allows individual investors and trusts to hold assets privately, without being subject to the IRS “qualified intermediary” regulations. These rules impose withholding tax rates up to 35% on assets held through foreign accounts if the offshore bank does not fully comply with U.S. recordkeeping requirements, or fully disclose the identity of U.S. investors to the IRS.

Rock-Solid Asset Protection

While Switzerland is much better known for its insurance services, Liechtenstein has had similar insurance laws for 150 years. But in 1996, Liechtenstein signed an agreement making it part of the European Economic Area (EEA), which gave it much better access to European investors and markets. (The EEA is not the same as the EU, and Liechtenstein is not subject to EU law, including EU tax directives.)

Liechtenstein began enacting innovative laws and regulations in order to more effectively compete in the European market. It fully adapted Swiss insurance laws, and, in some cases, enhanced them. Today, many Swiss insurers service the international market exclusively from their Liechtenstein subsidiary.

Asset protection with a Swiss or Liechtenstein insurance policy is tied to the choice of beneficiaries and whether the assignment of beneficiaries is irrevocable or revocable. When a foreign investor (the “policy owner”) purchases a Swiss or Liechtenstein insurance policy and irrevocably names a beneficiary (other than the owner), the policy cannot be included in the owner’s bankruptcy estate, since it is no longer considered the owner’s asset.

If the owner designates a spouse and/or descendants as revocable beneficiaries, the policy is protected against any debt collection procedures instituted by the policy owner’s creditors. If a foreign court orders the seizure of the policy or its inclusion in a bankruptcy estate, the order is not legally binding in Liechtenstein or Switzerland. Debt collection and bankruptcy procedures in Switzerland and Liechtenstein are always based on Swiss or Liechtenstein bankruptcy rules alone, without regard to foreign law.

In Liechtenstein, this protection extends to the unmarried life partner of the policy owner—a rare offshore benefit for same-sex couples.

In the event of the policy owner’s bankruptcy, ownership of the policy is, by law, transferred to the revocable beneficiaries automatically, provided the beneficiaries are the spouse and/or descendents. Hence, the policy will be fully protected and cannot be included in the bankruptcy estate. Only the beneficiaries, the new owners, can give instructions to the insurance company.

There’s even protection against duress; e.g., if you’re forced by a court to revoke a beneficiary designation. If a Swiss or Liechtenstein insurance company receives a letter from the policy owner revoking the beneficiary designation to comply with the order of a foreign court, the company may come to the conclusion that the instructions do not express the owner’s true intent, since they were coerced by legal process.

In this situation, the insurance company, under the anti-duress provisions of Swiss or Liechtenstein law, cannot follow the owner’s instructions. In order to avoid such situations, it’s possible to introduce a third party arbiter to the policy who must agree to all changes of the policy.

Beware Fraudulent Conveyance: Plan Early

Correctly structured, a Swiss or Liechtenstein insurance policy simply can’t be seized, however, you need to be aware of the Swiss or Liechtenstein fraudulent conveyance law. If no debt collection proceedings are initiated against you within one year of naming a beneficiary, the policy will be fully protected. Simply put, if you’re solvent when you purchase a Swiss or Liechtenstein insurance policy or when you name beneficiaries, you’re safe.

As with any asset protection plan, it’s important to purchase a Swiss and Liechtenstein insurance policy before problems arise that could potentially lead to a claim against your assets. When you do, you can sleep soundly knowing that your assets are protected by some of the strongest laws in the world.

Marc Sola is a member of The Sovereign Society Council of Experts and a Managing Partner of NMG International Financial Services, Ltd., a subsidiary of the worldwide NMG Group, incorporated in Singapore. The former CEO of an international and U.S.-registered investment advisory firm, Marc received his law degree at the University of Zurich. An expert on the insurance laws of Switzerland and Liechtenstein, Marc has written and lectured widely on the insurance industries in these countries.