The best way to achieve significant income tax minimization and iron-clad asset protection is through the use of foreign commercial annuities and foreign variable life insurance issued by offshore independent corporations that are engaged in the business of selling annuities and insurance polices to general public.
We have implemented this strategy for high-net-worth clients, including investors, venture capitalists, executives, entrepreneurs and other individuals who receive significant investment income and wish to minimize income taxes and protect their assets from attacks by future creditors.
This strategy provides significant tax savings in a tax-compliant manner.
The primary financial structure for this strategy to reduce tax on investment income is an independent foreign annuity company. The foreign annuity company, which is registered in a secure and confidential foreign jurisdiction in conformance with the laws of that jurisdiction, will protect the assets owned by that corporation and held in that jurisdiction from attack by United States or other creditors.
In addition, such a foreign corporation, having no U.S. shareholders, is entirely exempt from tax on capital appreciation of U.S. investments and is also exempt from tax on all non-U.S. income.
Confidentiality of corporate activities is assured by the laws of the jurisdiction in which the annuity company is established. Certain offshore jurisdictions limit the exchange of information to criminal investigations only.
Such jurisdictions also provide criminal penalties for unauthorized disclosure of confidential information, do not provide for the recognition of foreign judgments and contain a very short statute-of-limitations period for the commencement of actions in local courts based upon foreign claims.
Additionally, such jurisdictions exempt insurance and annuity assets and proceeds therefrom from attachment in satisfaction of civil judgments. Such foreign jurisdictions also exempt the annuity company from virtually all local taxes.
The foreign annuity company may enter into an agreement to purchase securities or other appreciated assets from you, in return for a commercial annuity. The agreement may provide for annuity payments to be made during your life. The amount of such payments will depend on the earnings produced by the underlying annuity fund’s investments.
In order to provide additional security to you with regard to the future annuity payments to be made by the foreign annuity company, the company may transfer the assets received from you (or the proceeds of their sale) to an independent foreign irrevocable insurance trust.
The beneficiaries of this trust would be your heirs, who would also be the beneficiaries of the annuity contract in the event of your death. This trust may purchase private placement variable life insurance from an international insurance company.
The life insurance policy will insure your life and pay death benefits to the irrevocable insurance trust. Your heirs, as the beneficiaries of the irrevocable insurance trust, would receive payment of such death benefits from the trust, free of all taxes.
If the life insurance policy is purchased from a foreign insurance company, the assets of the policy (cash value derived from premium payments and investments) may be held by the insurance company in a segregated asset account.
The assets in such account would not be deemed the general assets of the insurance company and they would therefore be protected from claims by any creditors of the insurance company.
Such an account could be managed by an independent investment advisor of your choice.
Income earned by this account would also be free of taxes. The irrevocable insurance trust may have the right to borrow the cash value of the insurance policy from the insurance company.
The trust may, in turn, lend money to the annuity corporation. The annuity corporation may use the loan proceeds to fund annuity payments to you.
In addition, insurance company may also make tax-free loans to you or your family members.
This plan may result in the removal of significant assets from your estate and therefor, a significant reduction in estate taxes.
The plan may also result in the minimization or deferral of capital gains taxes on appreciated assets, as well as the mitigation of income taxes on future investment income.
Funds borrowed by you from a foreign insurance company would be received by you tax free.
Minimal taxes may be due in the United States on each annuity payment as it is received by you.
Finally, this plan will provide complete asset protection on all assets held offshore.