Reap the Rewards of Offshore Annuities

Physician's Money DigestDecember15 2003
Volume 10
Issue 23

If you're looking for a great offshoretax mechanism, you may not have tolook any further. A customized, single-premium,variable annuity is one of thelast (and best) remaining tax-deferralmechanisms left for passive offshore investors.These annuities give investors avirtually unlimited choice of private investmentfunds and managers, while stillqualifying for favorable tax deferralunder the Internal Revenue Code.

Before you decide a customized, single-premium, variable annuity is right foryou, you'll have to find out if you're rightfor it. These annuities are available only to"accredited investors," as defined by theSEC (, and are intended forserious investors only, specifically, US taxpayerswho desire to accumulate capitalon a tax-deferred basis for retirement orother long-term financial objectives.

Annuity Awareness

Annuity note:

A variable annuity is based on a separateaccount that is established by aninsurance company. This account is usuallyreferred to as a "segregated" account.The policyholder generally decidesthe direction of the account's investments.For example, they can invest inprivate funds or with an independentinvestment manager. Investorsmay not make "investment decisions"(ie, buying and selling specificstock pursuant to IRS regulations) andstill have the policy qualify as a legitimatedeferred annuity.

Before we proceed, let's discuss thedifference between private annuitiesand conventional US variable annuities.Basically, private annuities give their policyholdersfar more options than conventionalUS variable annuities. As long asthe funds remain invested in the privateannuity, there is no tax liability to theinvestor and no tax or regulatory reportingrequirements. Policyholders may redirectthe investment strategy of theaccount at any time to another fund ormanager with no tax consequences.

Offshore vs Onshore

There's an important distinction betweenonshore and offshore companies:the ability to indirectly establish the investmentobjectives of the account. Inshort, onshore companies are heavilyregulated. They want to control the managementof both the underlying "risk"being insured and the assets themselves.On the other hand, offshore insurancecompanies separate the 2 functions. Theyrecognize that, while they may beexperts at managing risk, they are notexperts at managing money.

The ability to "segregate" accountsand generate custom-tailored returnsgives the Turks and Caicos Islands, Belize,and the Cayman Islands the ability tocompete effectively with older, internationaljurisdictions, as well as establisheddomestic insurance carriers. In thesefavorable jurisdictions, the law requiresthat separate accounts are subject onlyto the policyholder's claims. These accountsare not subject to any other liabilitiesof the company, even in the eventof bankruptcy or insolvency.

Although foreign carriers are prohibitedfrom advertising their products andservices in the United States, Americanphysician-investors may seek them out. Ifyou're interested in offshore annuities,talk to your advisor. Searching the Internetis another way of familiarizingyourself with what's out there. Be aware,however, that you'll probably have totravel overseas to execute these types ofinsurance contracts.

Joel M. Nagel, JD, a frequentwriter and speaker on internationalasset protection concepts, is thecreator of "The Physician's AssetProtection Plan." He practices lawin Pittsburgh, creating legal structuresaround the world to protect his global clientele.He welcomes questions or comments, or visit

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