When your government acts “above the law”, it is time for serious planning…
The following is reproduced with kind permission from Mountain Vision, the newsletter for clients of BFI Capital in Switzerland. The idea of privacy being a cornerstone of asset protection is very simple when you think about it. Long before banks even existed, people protected their assets by hiding them!
But sometimes we get so bogged down in legal details that we can’t see the wood for the trees. Legal protection is only as good as the legal system (and aren’t you trying to protect yourself against the legal systen?) This article discusses how you can achieve the goal of total privacy and confidentiality for asset protection purposes, while remaining compliant with the law in your country of residence. It discusses the use of physical precious metals such as gold bullion, and international life insurance and annuities of the type offered by BFI.
Anyone who understands anything about asset protection also understands the importance of privacy. It is primarily privacy that protects you from the intrusions of frivoluous lawsuits, greedy attorneys and other predators. Asset protection laws and structures are only the second line of defense. A good asset protection plan should aim at first avoiding exposure and visibility altogether.
What this DOES NOT mean is that you must break any laws. To the contrary, we recommend doing your offshore planning compliantly. However, in reading the newspapers, one could come to the conclusion that privacy is criminal. It is not. Governments around the world are running into fiscal problems, particularly the governments of Germany, the United Kingdom and America. Thus, they are setting off on an aggressive hunt for tax money, increasingly employing methods that are beyond legality.
When your government acts “above the law”, it is time for serious planning. In the absence of rule of law, the most fundamental prerequisite of a functioning free country is undermined. At that stage, protecting your freedom and your property within that country becomes a gamble. Privacy and property are in jeopardy and need to be protected OUTSIDE of your country.
Key principles of offshore privacy
This is the point where you enter the realm of offshore (i.e. international) wealth management and tax planning. A few principles in this context must be understood by all of our Mountaineers, no matter which jurisdiction they come from.
- The purpose of privacy is to protect the well-being and fortune of you and your family. Privacy does not necessarily require a numbered account though. It starts with your going about your affairs “quietly”, particularly in jurisdictions with a high level of litigation. It is important to keep a low profile if interested in avoiding unnecessary risk exposure.
- Privacy amongst tax authorities within a country that is fiscally bankrupt will generally not exist. Countries like those mentioned earlier have given up such privacy protection long ago. Banks, accountants, and other financial professionals have, to a large degree, become tax agents. The transparent citizen has become the norm.
- Safekeeping and investing assets offshore – in other words, outside of the borders of your country – per se is NOT illegal. What may be required though is regular reporting of those assets, depending on where and how your assets are deposited and managed abroad. Not declaring assets held overseas is what can get you into trouble.
- Making “offshore” (i.e. international) arrangements for the deposit and management of your assets does not mean that you can thereby leave the tax rules of your country of residence behind. They will generally apply elsewhere, too. Therefore, one should aim at implementing an offshore plan that achieves asset protection and privacy in compliance with the rules of one´s country of residence.
The ingredients of a solid plan
The ultimate objective of a solid international wealth management strategy should be to incorporate the benefits of overseas privacy while respecting the rules. The key elements of achieving that strategy are to implement a plan that provides for TAX DEFERMENT and NON-REPORTABILITY.
In most jurisdictions, there is no reporting required unless there is a taxable event. Thus, countries with a wealth tax, such as France or Switzerland, will require annual reporting of all assets. Most other countries, for example Germany, the UK, the United States, Spain or South Africa, do not have wealth taxes. Therefore, the employment of investment vehicles and structures that offer tax deferment will generally not be reportable.
The United States presents a bit of an exception here. Treasury Department Form 90-22.1 requires the reporting of all offshore accounts. The form was adjusted recently provoking widespread commentaries. One question that has been raised frequently was whether the new form requires the reportability of international life insurance policies and annuities. The answer, based on a legal opinion we’ve obtained from a top-notch international legal firm, is clearly NO. As long as the policy is tax-compliant, i.e. provides for compliant tax deferability, the state of non-reportability continues as in the past.
While other countries still have a number of strategies, including private placement life insurance and tailored annuities, the US is pretty much left with two strategies that offer compliant privacy and tax deferment:
- physically stored precious metals without using a bank account
- compliant life insurance “wrappers” and annuity policies.