Facets of life and annuity insurance coverage, asset protection

In Italy, capital-accruing life and annuity policies are widely established instruments for building retirement capital and preserving assets. Moreover, privately placed insurance contracts 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 fund-based 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 or longevity risks.

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

Attractive fiscal aspects of insurance contracts

Life and annuity insurance contracts are treated differently than assets in custody or real estate, for example. In Italy, insurance contracts without ongoing dividend payments are income-tax-exempt. Whether or not and how much tax is due depends on the nature and occasion of capital withdrawals under such contracts; as a rule, however, only a reduced income tax amounting to 12.5% of the proceeds is due. In many cases, skillful contract design can result in interesting income, bestowal or inheritance tax effects even for the assets of very wealthy families.

Together with the client’s tax and legal advisors in Italy 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 are 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.

In successorship situations in Italy, representatives of the next generation are entitled to receive benefits from insurance contracts at low tax rates. For this reason, insurance contracts are a frequently used instrument for wealth preservation across generations.

Tax privileges on relocation or for family members abroad

Privately placed insurance contracts are designed under consideration of the contract legislation and fiscal constraints of those tax jurisdictions in which the respective family members are domiciled. Properly designed contracts are not subject to ongoing taxation – not only in Italy but also in several other countries. 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.