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Lance Wallach
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    Regaining The Lost Confidentiality of Off-Shore Trusts

    By: Lance Wallach

    Trusts have been with us forever.  In fact, the first trusts date back from England
    during the time of the Crusades.

    Off-shore Trusts are as the name implies, a trust established in a country other than
    where you are domiciled. They are established for many reasons, including
    investment confidentiality and asset protection.  However, whatever the reasons,
    without confidentiality their value is negligible. In addition, the Internal Revenue Service is
    continually scrutinizing offshore trusts as they are often considered a means to avoiding or
    evading taxes.

    In establishing an off-shore trust, the client's attorney prepares a trust document,
    generally tailored to a specific off-shore jurisdiction. Next, a trust company is hired to
    administer the trust.  The trust company then opens up a custodial account at a bank
    which is then notified that the owner of the account is the trust.

    That was how it used to work.  Today, in jurisdiction after jurisdiction, the
    custodial bank is required to know who the beneficial owner of the trust is.  That's
    right!  Banks are no longer satisfied with the name of the trust but need a written
    statement from the trustee as to who is behind the trust and who in fact is the
    beneficial owner.

    Why is this happening?  It is a combination of pressure from the United States, the
    European Union and the general war on terrorism.  

    Some people think they can string one off-shore corporation owning another and
    owning another and so on, thinking they have achieved confidentiality.  Actually, they
    have achieved nothing of the kind.  At the end of the line of corporations, the bank
    must know who is the ultimate beneficial owner.

    Having the bank know who the beneficial owner is opens up a whole new avenue of
    attack for creditors.  If they can follow funds to the bank and get a court order to find
    out who the beneficial owner is, all of one's asset protection strategies may well be
    for naught.  Americans are especially vulnerable as the Federal Courts have shown
    an increasing hostility to off-shore trusts when used as asset protection devices.

    The Swiss Annuity Solution

    Trust settlers and trust companies along with their advisors are turning increasingly
    to Swiss private placement annuities as a solution to the issue of just who is the
    beneficial owner of assets but such trusts are  becoming less trustworthy than they were in the

    The Swiss annuity becomes the beneficial owner of the assets. The annuity policy then gives the
    policy owner the right of significant control without ownership.  Here is how it works:

                  *  An application is submitted to the Swiss insurer (or
                              its Liechtenstein subsidiary).

                  *  The insurer conducts its due diligence on the

                  *  The applicant is accepted

                  *  The client transfers the assets into the annuity.

                  *  The funds, while an asset of the insurer, are placed
                          in a separate account and held by a custodian bank.

                  *  The client requests the insurer to appoint an investment
                              manager to manage the funds.

    Who is the beneficial owner of these assets?  The answer again is simple: the
    insurance company, because there has been a separation of ownership and control.  
    By transferring the assets to the insurer, the client is paying a premium.  In exchange
    for the premium the insurer gives the client an annuity policy, which in turn gives the
    client certain rights of control to the assets held by the insurer.  For example, the
    client can make withdrawals at any time he chooses.  

    To be qualified for IRS purposes, there are certain specific rules that must be
    followed.  The client cannot directly manage the assets.  They must be managed by an
    investment manager.  The most that the client can do is meet with the investment
    manager and establish the basic strategy for the portfolio.  In addition, there are
    diversification rules that must be followed.  While almost any asset can be placed
    inside a Swiss private placement annuity, there are however certain limitations.  For
    example, one cannot place within the annuity, a business where one works or the
    home in which one lives.  

    On account of the Swiss insurers not being licensed in the U.S., clients need travel
    outside of the country to sign the application.  Of course, it is perfectly legal for
    Americans to purchase annuities or insurance anywhere in the world.

    Swiss Annuities and Asset Protection

    Swiss annuities contain, as a matter of Swiss law, significant asset protection
    After the policy has been in force for one year, it is virtually impossible for a creditor
    to prove fraudulent conveyance, because to do so, the creditor would need to prove
    fraudulent intent on the part of both the policy owner and the primary beneficiary.

    If a policy owner is adjudged bankrupt, under Swiss law he or she looses all control
    over the policy.  These rights devolve to the primary beneficiary.  The only condition
    is that the primary beneficiary must be either the spouse, child(ren) or grandchild
    (ren) of the policy owner.  As soon as the insurer has knowledge that the policy owner
    is bankrupt, they are prohibited under Swiss law from accepting any instructions from
    him.   Once released from bankruptcy, the policy owner's full rights under the policy
    are restored.

    In addition, it is important to note that with regard to lawsuits, Switzerland is a looser
    pays jurisdiction.   If someone brings a suit against your policy, not only will the
    insurer be responsible for its legal defense, but the loosing party must pay the
    winner's legal fees.  

    In this article I have given only a broad brush treatment to Swiss private placement
    Lance Wallach, the National Society of Accountants Speaker of the Year,  speaks and
    writes extensively about retirement plans, Circular 230 problems and tax reduction
    strategies.  He speaks at more than 40 conventions annually, writes for over 50
    publications and has written numerous best-selling AICPA books, including Avoiding
    Circular 230 Malpractice Traps and Common Abusive Business Hot Spots.  Contact him
    at 516.938.5007 or visit

    The information provided herein is not intended as legal, accounting, financial or any
    other type of advice for any specific individual or other entity.  You should contact an
    appropriate professional for any such advice.

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Regaining The Lost Confidentiality
of Off-Shore Trusts?

The Lance Wallach Network