The Sequoia Group

West Palm Beach Offshore Life Insurance Attorney

Offshore Life Insurance & Annuities – Realistic Opportunities for Long–Term Tax Deferral

While the mere creation of an offshore asset protection trust does not, in and of itself, provide for deferral of U.S. income tax, there are other sophisticated planning techniques that do provide effective long-term income tax deferral.

Offshore Variable Life Annuity

The most basic means of achieving the highly desirable goal of long-term tax deferral is through the purchase of an offshore variable life annuity policy. Just like a domestic variable annuity policy purchased from an underwriter located in the U.S., the offshore variable life annuity is created by the annuitant paying an initial premium for the issuance of a policy. The premium may be paid in the form of cash, stocks, bonds or other commercial instruments and may be additionally collateralized by granting a mortgage in real estate or executing a security interest in other collateral. Collateralizing the annuity in this manner achieves the dual purpose of securitizing the annuity policy and also sheltering the collateralized property from creditor attack by interposing a prior creditor for value.

Similar to a domestic annuity, the offshore life annuity can be structured to pay out after a period of years. In addition, the offshore variable life annuity can be structured to continue pay out, after the death of the original annuitant, to specific beneficiaries named in the policy. However, unlike a domestic annuity, which requires that an agent independent of the annuitant be named to administer the policy investments, an offshore variable life annuity allows the annuitant to act as his or her own investment advisor.

Offshore Annuity Benefits

During the period of time the annuity is growing in value, but before pay out begins, the annuitant realizes no income and has no U.S. income tax liability. When the annuity begins to pay out, a portion of each year’s payout is applied to offset the annuitant’s original adjusted basis in the annuity (i.e. the original premium). Thus, each year, only a portion of the payout from the annuity is recognized as taxable income. In addition, no income tax is imposed by the offshore jurisdiction where the annuity is established.

The result is the long-term deferral of U.S. income tax and continued growth of the value of the annuity policy. During this period of time, the assets serving as collateral on the policy remain virtually impregnable from creditor attack. Furthermore, interest in income which has not yet been paid to the annuitant at the time of initial purchase—e.g., lawsuit settlements, distributions from an ongoing partnership or sale of a business—can be assigned to the annuity in order to further collateralize the policy. As a result, this income will not be subject to U.S. income tax until the annuity begins to pay out.

Cost to Establish an Offshore Variable Annuity

The cost to establish an offshore variable life annuity varies depending on the jurisdiction, but is generally around 2-3% of the total value of the assets that initially fund the annuity. In addition, there are yearly administration fees, but these are relatively low given the fact that the annuitant may serve as his or her own investment advisor. The annuity also may be structured to pay out directly to an offshore asset protection trust established at the time the policy is purchased.

Countries Offering Offshore Insurance Products

Offshore insurance companies, which offer a variety of fixed and variable life annuity policies are located in the Cayman Islands, Isle of Man, Bermuda, and a number of other offshore tax havens. While other legally questionable means of achieving income tax deferral are often marketed, the offshore variable life annuity policy represents the one completely legitimate means of achieving this aim that stays within the established bounds of the Internal Revenue Code.

Contact Us

For more information on offshore life insurance and annuity products and how they can benefit you, we invite you to contact The Sequoia Group at 561-988-6885 or toll-free at 866-988-6009. We will be glad to arrange a consultation at your convenience.

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