Offshore Annuity, Deferred Variable Annuity

Rocco Beatrice
 


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An Offshore Annuity works very similar to a deferred variable annuity. The owner pays into the annuity during the accumulation phase using either a lump sum or paying scheduled amounts over a period of time. The money in the annuity will gain interest at a rate determined by the investment portfolios in which it was placed, and either the owner or annuitant will be taxed once the withdrawal period begins.

You should remember that the owner and annuitant do not need to be the same, and for an Offshore Annuity the owner is usually an offshore trust. If the two annuities are so similar, then what is the benefit of having an Offshore Annuity versus a U. S-based deferred variable annuity?

BENEFITS AND ADVANTAGES OF AN OFFSHORE ANNUITY

There are several advantages to having an Offshore Annuity, but they can be easily narrowed down into three main benefits:

1. flexibility

2. protection

3. tax advantages

FLEXIBILITY OF AN OFFSHORE ANNUITY VS DEFERRED VARIABLE ANNUITY

When you choose to purchase a deferred variable annuity you are usually opting to place your money into mutual funds, equity funds, bond funds, etc. The investment portfolio chosen for your money is done by the insurance company you purchase the annuity from, and is limited to venders they have contracts with.

An Offshore Annuity offers more investment options since the overseas advisor can choose to place the money in any of the previously mentioned portfolios, or, for example, they can invest your money in gold. The overseas advisor is not limited by contracts and can invest your money into a number of diversified accounts. Your rate of return is not guaranteed, and is determined by the success of your advisor’s chosen investments.

ASSET PROTECTION AND SECURITY OF AN OFFSHORE ANNUITY

Offshore Annuities offer much more than just increased investment options; they offer a secure way to hide your existing assets from the U. S Government. This feature of an Offshore Annuity is also known as Wealth Preservation. If the offshore issuer of your annuity has no U. S-based affiliations, U. S Courts have no jurisdiction over them or your annuity. This means that anyone wishing to effect a garnishment of your assets must receive permission from the host country where your Offshore Annuity originates.

This is not as easy as it seems since Offshore Annuities are not subject to U. S foreign account reporting requirements. This feature of an Offshore Annuity makes it extremely difficult to link you to any funds other than what you report on your income taxes. It is important to note that while you can be both the owner and annuitant for your annuity, this situation only applies if the owner of the annuity is an offshore trust. (Please note Estate Street Partners and its partners do not ever condone on misreporting on your income. )

FRAUDULENT TRANSFER LAWS ON ANNUITY

If you are both the owner and annuitant, you may be ordered by a U. S. Court to use your annuity to pay a creditor. There are only a few states which exclude annuities from creditors, but you will be subject to fraudulent transfer laws if you obtained the annuity for the sole purpose of hindering or delaying a creditor’s claim.

Having an offshore trust take ownership of your annuity avoids this situation altogether, although it is important to investigate the fraudulent transfer laws of the offshore trust and choose only those which appear investor friendly.

OFFSHORE TRUST OF ANNUITY: WITHHOLD DIRECT ANNUITY PAYMENTS TO BENEFICIARY

Having an offshore trust for your annuity offers you, as trustee, the option of withholding direct annuity payments to a beneficiary. If the beneficiary is affected by a drug or alcohol addiction, or is battling legal issues, you may choose to allocate annuity payments indirectly for their benefit. This is very different from a deferred variable annuity which only offers a direct payment to the annuitant or beneficiary in the form of lump sum or scheduled payments.

TAX ADVANTAGES OF OFFSHORE ANNUITY AND OFFSHORE TRUST

Your Offshore Annuity will grow tax-deferred until you begin withdrawing money, and the U. S Government only requires a one percent excise tax on the premium you paid to implement your Offshore Annuity. Another difference between a deferred variable annuity and an Offshore Annuity owned by a trust, is your beneficiaries do not need to receive payments immediately following your death. Therefore they can delay paying taxes on your annuity until the trust begins distribution of the annuity.

HOW TO PURCHASE AN OFFSHORE ANNUITY? WHO IS IT FOR?

An Offshore Annuity is not for everyone. Most issuers require more than one million dollars to implement your annuity. As previously mentioned, it is wise to have an offshore trust own your annuity. In this case, the offshore trust completes the annuity application and sends it to the issuer. Upon approval you will wire funds to the bank account of your trust, who will then wire the premium to the issuer to complete the transaction.

author bio - Rocco Beatrice, CPA, MST, MBA
award-winning estate planning & trust expert
MS - Taxation, Master of Science Taxation
MBA - Management / Taxation
BSBA - Management / Accounting
CPA - Certified Public Accountant
-
Asset Protection Irrevocable Trust, Estate Planning
Annuity Types
71 Commercial Street #150, Boston, MA 02109
tel: +1.508.429.0011 fax: +1.508.429.3034

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