CHRISTIAN SCIENCE MONITOR Article:

Swiss annuities: A long way to go for tax advantages

Work & Money: "Financial Q&A" Column
from the December 19, 2005 edition

Q: Where can I find information about "Swiss annuities"?

G.C., via e-maIl

A: A Swiss annuity is basically a Swiss bank account wrapped in an annuity contract, says John Dietz, a senior adviser at Trustmakers.com. Such annuities allow owners to invest in foreign stocks, bonds, and mutual funds in a tax-favored environment.

Owners typically invest a lump sum, which then is placed in various subaccounts. Each one can have a different investment strategy (aggressive, moderate, or conservative).

Swiss variable annuities have no guarantee on returns, but they are sheltered from income and capital-gains taxes during their accumulation phase and partially sheltered from income taxes during the payout phase.

While a Swiss annuity sounds a lot like its US cousin, Mr. Dietz notes some differences:

• Fees. Many investors are put off by annuity fees, which can easily chew up 2 percent annually. Some Swiss variable annuities come with maximum annual charges of only 0.6 percent.

• Liquidity. With some Swiss annuities, the surrender charge only lasts one year. American annuities can ding you for seven to 10 years.

• Asset protection. If properly structured, assets in a Swiss annuity can be completely protected from creditors.

• Privacy. A Swiss annuity is not reportable as a foreign financial account, and no US excise taxes are incurred. Information won't be released unless you have committed a crime under Swiss law or in the event of tax evasion.

Most financial experts agree that people should invest in foreign markets to counter any downturn in the US markets. A Swiss annuity offers this, but bear in mind that your money is a long way from home, and perhaps with a company that doesn't provide a toll-free number or other forms of instant access.
Lastly, Dietz notes that finding someone you can trust with information on Swiss annuities can be difficult. A number of companies market them on the Internet, but you'll need to dig further to determine if they are on the up and up.

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FINANCIAL TIMES Article: Interview with Rob Lambert

Thinking of placing money offshore to reduce your tax liability? Think carefully. Not only is it a misconception that Americans can avoid taxes by placing money offshore but also certain offshore stock accounts can have dire consequences for the unwary investor.

"Offshore accounts are taxable for U.S. citizens, period," says asset protection specialist Robert Lambert, President of Asset Protection Corporation. "U.S. citizens are taxed on worldwide income.”

That means if even your offshore trust or international business company is domiciled in a tax haven, it is still subject to U.S. tax laws.

Offshore tax havens such as the Bahamas, Belize and the Cayman Islands have gained legendary status as places for wealthy individuals from CEOs to drug barons to shield their money from U.S. tax laws. The countries' banks are eager to attract new funds, offering maximum privacy in return.

However, the reality of tax havens may not live up to the legend.

"The myth of the tax break is perpetuated by the companies that are offshore and by unscrupulous promoters here," says Jay Adkisson, a U.S. attorney and editor of a web site on offshore planning.

The U.S. government doesn't restrict moving money offshore, but it does want to know how much money is moved and when (to keep track of money laundering) and it wants to know that it is receiving the appropriate taxes on any dividends, interests, or gains made on moneys invested offshore, says Adkisson. "In other words, the U.S. generally doesn't care if you move assets offshore -- so long as you comply with all reporting and tax requirements."

But understanding U.S. tax law as it relates to foreign accounts and transactions is just the beginning. Investors also need to know how an offshore trust or corporation operates, how these entities must be reported to the IRS, and how they are taxed.

If that weren't concern enough, experts warn the lack of regulation in the offshore industry makes it fertile ground for fraud. Rogue companies, many of whom advertise on the Internet, are eager to swindle careless investors striving for tax haven nirvana. Ever hear of the Dominion of Melchizedek? It earned the dubious distinction as the first nation in cyberspace. And it sells bogus bank licenses.

Nonetheless, offshore accounts make sense for several reasons, including confidentiality from claimants, ex-spouses and other parties and for asset protection, where money in a properly structured account is protected from future claims.

"The reasons for moving assets offshore range from the mystique of being offshore to legitimate concerns for asset protection and preserving wealth for heirs,"

USA TODAY ARTICLE: Do you need to protect assets? How much you have determines level of security.

Rob Lambert lost every penny in the early 1980s, his tragedy ignighted a passion to study Asset Protection Law. Now he shows other people how to protect themselves.

By Susan Decker

You've worked hard to get where you are. And you've accumulated a home, a couple of cars and a substantial amount of money. But a business failure, or a lawsuit by someone who claims you injured them, could take it all away. How do you protect yourself and your family? The answer could be as simple as putting your home or business in the name of your spouse and children, or as complex as an offshore trust.

In the 1980s, Rob Lambert overextended himself buying real estate in the spiraling New York market. When property values took a dive, he lost every penny he had. "I didn't have the brains to take a portion of the money I had made and put it into a protected environment," he says. He started Asset Protection to tell others how to protect their assets. Lambert, who wrote Asset Protection Trusts, also owns a recording studio in West Hollywood, Calif., with his wife, country singer Kelli Lidell.

Fear of lawsuits

Today, fear of lawsuits and a desire to protect a home and fortune -- of whatever size -- is driving a rise in the number of lawyers, financial planners and accountants who specialize in protecting people's assets. The American Bar Association's lawyer locator service lists 236 lawyers specializing in asset protection.

"People are seeing what the risks are. They see the news about outrageous verdicts," says lawyer Robert Mintz of Del Mar, Calif., who has specialized in asset protection for 20 years.

One example of the types of verdicts being handed down involved a Texas businessman who claimed his partners pushed him out of the firm he founded. A jury awarded him $1.5 billion, according to Lawyers Weekly. Such outsize verdicts usually are reduced on appeal or by settlement. Still, there is reason to be concerned.

"People are probably of the belief they won't be sued. Unfortunately, that's not the case," says Don Griffin, a director with the National Association of Independent Insurers.

Forty-one percent of people involved in auto accidents in 1997 retained a lawyer, and "it doesn't take an exorbitant award to devastate a person's finances," he says.

Some unscrupulous people use asset protection tactics to hide from creditors or to try to duck the Internal Revenue Service. But there are many more legitimate uses, says New York attorney Gideon Rothschild, chairman of the Bar Association's committee on asset protection.

"If I'm a gas station owner who can't get insurance for environmental claims, and I sell the station, does that mean for the rest of my life my assets are exposed?" he asks. "People should know there are legitimate steps they can take at the right time to protect themselves."

The "right time" is before a lawsuit is filed. If a judge thinks you set up a trust or put property in your spouse's name to avoid paying a debt, you could be in trouble.

Protecting yourself

Some strategies to discuss with an expert:

Insurance. Insurance usually is the first line of defense from a lawsuit, experts say. Standard homeowner's and professional malpractice policies cover general liability and provide a lawyer to defend you when someone falls on your property or claims you were negligent in your profession.
A separate "umbrella" liability policy that kicks in when regular insurance benefits are exhausted will handle most big claims.

The law. No creditor can get at money that's due you under an employer-provided pension plan. That's protected by federal law.

Beyond that, rules on what a creditor can force you to give up to pay a debt or a judgment vary from state to state.

Some states protect your home, 75% of your income and any retirement accounts.

Titling. If you think you might be sued, put assets in the name of a spouse or family member who is at lower risk of lawsuits. This works for small amounts but can cause problems with estate taxes if the amount gets too large.

Also, you can lose control of assets that are legally in someone else's name. Joint ownership usually is a bad idea for a variety of reasons. If you get sued, everything that is jointly owned can be taken.

Businesses and real estate. Limited partnerships and limited liability companies split ownership in an attempt to keep creditors from seizing businesses and real estate. A basic family partnership involves giving each member of your family a share of a business, with no one having a majority share.

Kansas accountant, Vernon Jacobs, runs an asset protection newsletter. His small publishing company is split among family members. If a creditor comes after him, "they have to deal with my wife and daughters."

Trusts. Offshore trusts are popular because a judgment from U.S. courts may not be recognized in another country. But they are controversial. Some states also have enacted protective trust laws, but they haven't been tested in court.
"I think asset protection is being oversold and over marketed. People are often sold an offshore trust for $20,000 when they are better off with an umbrella (insurance) policy," [assuming they can get proper coverage.... which they can't at any price, says Rob Lambert].

Says Jay Adkisson, an Irvine, Calif.-based asset protection lawyer whose Web site (www.quatloos.com) exposes scams involving asset protection. "Behind most asset protection is a simple premise -- the less money available to someone who might sue you, the less likely you are to be sued. A $10 million malpractice insurance policy or a fat bank account can get lawyers salivating".

The moral: Shrink the pot, and fewer will bother to sue.

Anyone with some money saved needs some level of protection. How much depends on how big your bank account is. A lawyer, financial planner or accountant should be able to help you decide how far to go.

NOWHERE TO HIDE - From the June 14th issue
of Time Magazine, page 248

Putting your assets in a trust, in banking friendly nations such as the Cayman Islands is becoming popular. And it can protect assets if you get sued. But foreign trusts do not excuse you from paying taxes. Yet that's exactly the tip you'll get from thousands of websites offering "expert" advice on moving your money offshore. If the site recommends a "pure" or "constitutional" trust, stay clear.

Pragmatism and prenups

With divorce on the rise, prenuptial agreements are gaining popularity
By Staff Writer Shelly K. Schwartz

NEW YORK (CNNfn) - Mention the words "prenup agreement" at your next social gathering and you'd best be prepared to go eight rounds.

Few topics in modern-day America inspire such swift fury -- even from those who aren't directly involved. After all, asking your betrothed to sign a contract that limits his or her rights to your assets flies in the face of romance. It implies you don't have faith in the relationship. And that you care more about your bank account than your soon-to-be spouse.

Doesn't it?

Not necessarily, said Miriam E. Mason, president of the American Academy of Matrimonial Lawyers.

Prenuptial agreements, she said, are beginning to shed their one-time reputation as cold-hearted relationship killers and are, in fact, fast becoming the financial planning tool of choice for middle-aged Americans heading back down the aisle for the second or third time.

"I still think people have a stereotyped view of prenup agreements; that they say let me have everything and you get nothing," Mason said. "Certainly those kinds of contracts still exist, but are these good solid relationships? Don't believe it."

Mason, a long-time family law attorney, said prenups today serve a much different purpose. They establish a dividing line of sorts between the hard-earned assets each party brings into the marriage and those they will share jointly after the vows are exchanged.

"More and more people are divorcing and marrying a second time and they [set these contracts up] because they don't want to make the same mistakes over and over again," Mason said. "They really want it to last, and both parties are usually far more open to doing all they can to [create a dispute-free] relationship."

Perhaps most important, however, such contracts provide financial security for the children being thrown into a new family unit.

Divorce Insurance

Prenuptial agreements are legally binding contracts that spell out who owns what going into the marriage and who will own what in the even of a death or divorce.

As the name would suggest, prenuptial agreements are created before the couple says "I do." Contracts created after the wedding day - which are far less common - are called postnuptial.

The rules that govern such agreements differ slightly from state to state, but virtually all stipulate that in order for such a contract to be binding there must be full and fair disclosure of all assets by both parties. Both parties also must have legal representation and the document cannot be punitive on its face. That means the contract can't be designed to penalize the "non-wealth" spouse.

"Basically, it resolves all of the issues in advance that would normally be resolved in a divorce case," said George Stern, an Atlanta-based family law attorney of 36 years.

Depending on legal fees and the complexity of assets being declared, they can cost anywhere from a few thousand dollars to $25,000 to arrange.

But with divorce rates where they are today, experts say that can be a small price to pay for peace of mind.

"It's a form of protection," said Michael Viola, a divorce lawyer with Shainberg & Viola in Philadelphia. "You have health insurance in the event something should happen to you physically. Think of this as divorce insurance."

In some states, failure to create such a document could cost you up to half of your holdings - even if your marriage lasts only a few months or years.

The U.S. Census Bureau reports that 19.4 million adults were divorced in 1998 - the most recent year for which data are available.

"In the past, the only people who really needed prenups were the very rich and those entering into a second or third marriage; or widows and widowers trying to preserve their estates for their children and grandchildren," Stern said. "But in the last five years, with the economy changing and everyone making all this money on the Internet, prenups got to be really big time in that even first marriage spouses are looking to preserve the assets they are bringing into the marriage."

Stern estimates 10 percent to15 percent of altar-bound Americans enter into these types of arrangements each year - mostly those who have accumulated or inherited significant wealth of a million dollars or more.

Interference from the sidelines

Interestingly, however, Stern noted it's not just the brides and grooms-to-be pushing for financial protection. In many cases, he said, it's their parents.

"I've done more of these in the last two years than I had done since I started in this business," he said. "What happens is the parents have accumulated large sums of money in real estate, or in initial public stock offerings and they've put much of it in their children's names through trusts. They then insist that their child's fiancé enter into a prenup with their child."

Sound like something out of "Mommy Dearest?" To most of us, maybe. But to hard-working baby boomers who wish to ensure that their money be divided among their children and grandchildren, it's a little less callous than it sounds. It's nothing more than a basic estate planning tool.

"This is a new look at things," he said, noting the ultimatum may not be directly communicated but "the innuendo" is that the son or daughter won't receive the assets at all if they insist on getting married without the prenup.

The alternative

It doesn't happen often, but in certain cases where a prenup is in place the divorce court judge will overturn that document and rule in favor of the "non-wealth spouse." This happens most often to the very wealthy, where one spouse (usually the wife) receives virtually no division of assets upon the divorce.

Consider the break-up of real estate mogul Donald Trump and ex-wife Ivana. The latter walked away with more than $50 million in a settlement after Trump's highly publicized affair with beauty queen Marla Maples. Under terms of the original agreement, she would not have been entitled to Trump's funds.

Enter: Asset protection trusts.

These little-known tools allow individuals to transfer ownership of all their assets - including real estate, stocks and savings - into a trust account that is held overseas. The assets themselves remain unchanged and you would then designate yourself as the trustee.

Rob Lambert, president of the Asset Protection Corp. in Manhattan, said the beauty of these trusts is that they allow the trustee to name as a primary beneficiary anyone they like - including their spouse. In the event of your death or disability, the spouse takes on ownership of those assets.

"This way you get to name your spouse as the beneficiary," said Lambert, who estimates between 10,000 and 20,000 Americans have set up these types of trusts. "You have something in writing that shows you believe in the marriage."

Better yet, (depending on your perspective) you retain the right as the trustee to remove your spouse as the beneficiary anytime you choose. If the marriage remains on course, your spouse keeps the beneficiary status. But if it starts to crumble, you can always change your mind.

"Prenuptial agreements destroy trust in a relationship," Lambert said. "It's not romantic and it can leave the marriage bed very cold. But these trusts ensure that you are protected in the eventuality of a divorce and they allow you to name your fiancé as the beneficiary while the marriage is going well."

Such trusts, he noted, are virtually tamper proof once created. That's because the trusts are set up in other countries, including England and France, rendering the assets untouchable by U.S. divorce courts.

It will not, however, render those assets untouchable by the Internal Revenue Service.

"Anyone who tells you that offshore trusts are a way to hide your assets from the tax man is telling you to commit a crime," Lambert said. "If you are a U.S. citizen, you are taxed on your assets worldwide. These trusts won't save you any taxes at all."

They won't save you any money upfront either. Asset protection trusts cost anywhere from $15,000 to $25,000 to set up. They are therefore only advised for the very rich.

"Most people who set these up have several million dollars to protect," Lambert said. "But would I spend $20,000 to protect $500,000 that I've worked 10 years to build? Sure."

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