Facets of life and annuity insurance coverage, asset protection

In Austria, capital-accruing life and annuity policies are widely established instruments for building retirement capital and preserving assets. Moreover, privately placed insurance contracts based on fund-linked rates offer wealthy families the opportunity to influence capital preservation and the long-term development of the family’s assets by specifying and/or amending the contract’s underlying investment strategy. The value-preservation principles to be observed in conjunction with insurance contracts are asset diversification across several asset classes (such as stocks, fixed-income paper or commodities), the avoidance of solvency risks involving banks or financial product issuers, and the coverage of additional biological risks such as mortality risks.

Suitably formulated contractual provisions with various insurances companies in different jurisdictions can also offer a high level of protection against third-party access in seizure and bankruptcy proceedings before Austrian courts (for instance with respect to entrepreneurial liability risks or directors’ and officers’ liability claims).

Attractive fiscal aspects of insurance contracts

Life insurance contracts are treated differently than assets in custody or real estate, for example. Although Austria generally levies an insurance tax of 4% on the finalization of an insurance contract, such contracts are then no longer taxed during their term. Survival benefits are income tax-exempt after a minimal contractual term of 10 years, and death benefits are always income tax-exempt.

In many cases, contract design can in an international context result in interesting tax effects even for the assets of very wealthy families.

Together with the client’s tax and legal advisors in Austria and elsewhere, swisspartners will develop suitable concepts.

Wealth transfer outside the estate

Benefit entitlements from insurance contracts are not in the estate of the testator if the contracts are suitably designed. Combined with adequate long-term planning, this approach also allows the implementation of successorship scenarios provided for outside the legal succession sequence that largely exempt from legitime, or forced share, legislation. Contrary to a bank, for instance, an insurance company can pay out benefits even if no certificate of inheritance is submitted. Thus, the immediate legal competence of the successor after the decease of the asset owner is assured.

Under a successorship, benefits from insurance contracts are no longer subject to inheritance tax in Austria, but they must be reported to the Austrian tax authorities. For this reason, insurance contracts are ideal for wealth preservation across generations.

Tax privileges on relocation or for family members abroad

A key aspect in the design of privately placed insurance contracts lies in reducing the overall fiscal burden of the tied-up assets in the event of planned relocations of the asset owner or if the beneficiaries are domiciled in various jurisdictions. Properly designed contracts are fiscally privileged not only in Austria but also in several other countries.

Because of the fact that insurance benefits are income and estate tax-exempt in Austria under certain circumstances, privately placed insurance contracts are particularly interesting when the successors are domiciled in Austria or plan to move to Austria (on retirement, for instance). When a fiscally privileged insurance contract is finalized prior to the relocation to Austria, the Austrian insurance tax of 4% is not due.