Facets of life and annuity insurance coverage, asset protection

In Switzerland, 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.

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 Swiss 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. Although a non-recurring insurance tax of 2.5% is levied in Switzerland, surrenderable insurance contracts without periodic capital payouts are subject only to periodic property taxation in Switzerland. Whether or not and how much income, estate, or bestowal tax is due depends on the nature and occasion of capital withdrawals under such contracts as well as on specific cantonal tax law provisions. In many cases, skillful contract design can result in interesting income, bestowal or inheritance tax effects even for the assets of very wealthy families. Privately placed insurance contracts are interesting not only for families subject to ordinary taxation in Switzerland but also for those (possibly modified) taxation on the basis of a lump-sum agreement.

swisspartners develops suitable concepts together with the client’s tax and legal consultants in Switzerland and in other countries involved in the wealth or family constellation.

Wealth transfer outside the estate

Benefit entitlements from insurance contracts are not in the estate of the testator in Switzerland if the contracts are suitably designed. 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 wealth transfer situations, benefits paid under insurance contracts are subject to estate tax and (reduced) income tax in Switzerland. Wealth transfer arrangements involving privately place insurance contracts are particularly worth exploring if the successors are domiciled in a neighboring EU country.

Tax privileges on relocation or for family members abroad

The design of a privately placed insurance contract is governed by the contractual and fiscal sovereignty of those countries in which the involved family members are fiscally domiciled when the contract is finalized and when the benefits become due. Properly designed contracts are fiscally privileged not only in Switzerland 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 from Switzerland to a foreign country or if the beneficiaries are domiciled outside of Switzerland.