In the last issue of
Swiss Perspective we came to the conclusion there would be more turbulence ahead. Market psychology was ripe for a disappointment. Then came the plunge in global stock prices. In most industrialized countries, stock markets have fallen more than 20% from their record hghs and some are negative for the year. Investors have stampeded to safety.
After risk premiums for equities have been raised to such a level, it is now more difficult to say what will happen. One sign that the markets are cheap is the lack of news on the merger front. Companies may feel they are worth more than the market is willing to pay. Conversely, a flurry of mergers and acquisitions usually marks the approaching end of a bull market, as investors are conned into paying more than a merged company is worth.
But we still have our concerns. Clearly the Fed's manuevering in the LTCM case and subsequent rate cuts are signals. There could be more hedge fund disasters around the corner. And more disasters in emerging markets. Brazil's financial ailments need immediate attention, Japan's chronic banking crisis threatens to flare up any moment, China's is simmering -- there are likely to be more financial failures of state-controlled investment houses -- and any one of the stricken Asian Tigers could have a relapse. Year 2000 problems certainly won't help bring back investor's shattered confidence in these markets. A recovery in Asia does not seem to be in the making in the next year or two.
Could we end up in a global depression? It's easy to imagine how the next trigger could push us into the abyss. With inflation near zero in the U.S. and some parts of Europe, deflation is not unthinkable. Stock prices could have further down to go. Remember, the lesson of the 1920s and 1930s: dominoes simply keep falling. Southeast Asia, South Africa, Russia and Venezuela could be followed by Brazil and China.
A Critical Investment Strategy
If you had the foresight to build a balanced portfolio of stocks, bonds and Swiss annuities, which pays attention to both capital growth and capital preservation, then you've saved yourself a bit of pain. Now you need to have the foresight to reinforce the capital preservation foundation of your financial structure.
"With all the risks in the horizon, you should be preparing for the worst".
Consider the implications of a fair to high probability of a worsening in economic trends. The risk of default in your corporate bond investments rises and bond prices fall. Dollar-denominated assets will take more of a beating. Governments get more desperate and unleash a flood of regulations and controls. More and more jobs are put on the line, more and more businesses fail. If you manage to sidestep these scenarios, you could still be hit by someone who hasn't and is looking for any way to shore up his or her financial resources. With these risks in the horizon, you should prepare for the worst.
You need a super-safe haven in Switzerland. You need a fool-proof asset protection device.
Guarantee against financial ruin
JML now offers the Swiss Asset Protection Certificate (APC). It's a vehicle to protect your assets and your family's financial well-being in times such as these. It provides all the privacy you want, but unlike a bank account, privacy is not the essential ingredient to protect your assets. The Certificate has a built in asset protection device. This device is in full legal compliance, has been tested in court and generally accepted for decades.
You'll be pleasantly surprised that the asset protection of your Certificate comes at no extra cost. Protection is a matter of law. This is a windfall when you think that setting up an offshore trust could easily cost you $20,000 in legal fees upfront and some percentage of every subsequent transfer!
Cost is just one benefit over offshore trusts. Another is, unlike trusts, the investor remains the legal owner of the investment. You never have to relinquish control of your assets. This also makes it much simpler to liquidate, which one can do at any time before the scheduled maturity. Any time you need it.
But as with any asset protection device, APCs are only valid if they are desighned to protect against future, unanticipated litigation -- not existing or threatened ones. Transfers occurring in view of the latter are deemed fraudulent.
"This Swiss Asset Protection Certificate is a fool-proof protective device"
How it works
The Swiss Asset Protection Certificate is actually an annuity. JML has re-designed the policy so that it meets all the requirments for a fool-proof asset protection device.
The basis of asset protection in Swiss life or annuity insurance policies is a provision in Swiss law that shields insurance investments from collection and bankruptcy procedures if the policy owner designates his spouse or children as beneficiaries. Or the owner may designate other parites, if done on an irrevocable basis. The idea is if you, as the owner, go bankrupt, ownership is automatically transfered to the beneficiaries who are beyond the reach of creditors.
Underlying all this is the traditional Swiss principle that everyone is entitled to protect their wealth for the benefit of family members. Not just the super-rich who can afford to pay hefty legal fees.
That may not be as romantic a proposition as it sounds. The pragmatic Swiss believe that the more wealth kept in the family, the less need for welfare programs. So until, welfare reformers everywhere come to this same conclusion, there will be a need for Swiss Asset Protection Certificates.
Why go overseas for asset protection? And why Switzerland?
First of all, it's important to go overseas for asset protection because this is the only way your assets can be placed beyond the reach of the legal, political and economic system you live in. In the US in particular, the loss of financial privacy is a major concern. Your local trust companyīs records can be summoned by goverment agancies and courts, anyone can learn the details of your bank account, your investments, even how you spend money. Your wealth is rendered visible -- therefore vulnerable to all sorts of predators who might picture you as a potential vehicle for quick profit. In many countries, tax and exchange control systems punish investors to the point of confiscation.
For full lawsuit protection, investments must be made outside an investorīs legal jurisdiction -- and inside a long-established, politically stable country that protects a personīs privacy and discourages frivolous and inventive litigation.
Now we come to Switzerland. Itīs been around long enough (more than 700 years!) and kept at peace with its neighbors for many centuries. No mean feat for the wartorn 20th. A financial infrastructure has existed since the Middle Ages, with tradersīneed for loans and deposit-taking giving rise to banking intitutions. Due to its central location in Europe, those Swiss banks had an international clientele early on.
It is not by coincidence that Switzerland has the world's toughest confidentiality and financial secrecy laws. It certainly did not happen overnight as in many offshore financial centers. Even before secrecy and asset protection laws came into existence, confidentiality had been the Swiss banker's byword for generations. Indeed, privacy is part of the Swiss culture -- your financial affairs are deemed to be your private, and yours only.
Weīve already mentioned how Swiss law provides for asset protection in Swiss life insurance policies. To summarize, as long as your spouse or children, or a third party when done irrevocably, are named as beneficiaries, your policy is protected. No bankruptcy court can then force you to redeem the policy. Your beneficiary need only inform the insurance company of the situation and the court's action would be deemed a circumvention of Swiss rules.
Now we still have to mention how Swiss law discourages frivolous litigation. Thereīs enough here to fill a few comparative law books, but for now it should suffice to say that there are no contingency fee-based lawyers in Switzerland. So anyone who wants to crack at your nest egg, will have to pay up front for legal counsel. And since your Certificate also offers you legal insurance in Switzerland, you wonīt need to put up a legal defense fund.
The Achilles Heel of asset protection trusts is something called "fraudulent conveyance". Is it the same for the Asset Protection Certificate?
Swiss law makes a similar ruling: transferring funds into an APC when litigation is pending which could make you insolvent, and doing so with your beneficiaries' knowledge of your intent to defraud creditors, makes your APC null and void under Swiss fraudulent conveyance rules. The same is true in the case of a bankruptcy or judgment of asset seizure within 12 months, so long as the owner was solvent and no creditor has asserted any claims which would have rendered him or her insolvent at the time of designating the beneficiaries, then creditors are out of luck.
The smart thing to do is, as always, plan ahead. The next 12 months could be the difference between financial health and ruin.
COMPARISON: SWITZERLAND AND OFFSHORE TRUSTS
The chart shows convincingly that the choice of a Swiss Asset Protection Certificate (APC) is an easy one to make. With offshore trusts (OT), the investor needs to do a lot more homework.
Comparison of main benefits
|Privacy||yes||yes||Privacy. This is a feature of all asset protection devices. It's just a question of how much the law upholds privacy. In Switzerland it is a crime to divulge banking details.|
|Foreign jurisdiction||yes||yes*||Foreign jurisdiction. Even if you set up a trust in a foreign jurisdiction, if trust assets remain invested locally these are up for grabs. A recent property settlement in a U.S. court included $3.4 million in trust assets traced to investments the foreign trustee made inside the United States. A Swiss Asset Protection Certificate falls solely under Swiss Law.|
|Liquidity||yes||yes**||Liquidity. Here again the investment decisions made by the foreign trustee are pertinent. APCs are always liquid.|
|Tax-free locally||yes||variable||Tax-free locally. Not every offshore center is the same with regard to taxes. You will need to find the one that fits your personal tax situation. With the APC, non-residents never have to pay any Swiss taxes.|
|Owner retains control||yes||no||Owner retains control. The basis of a trust is the tranfer of ownership to a trustee. In contrast, an APC policy holder is the owner and retains full control so long as he or she remains solvent.|
|Established legal principles||yes||variable||Established legal principles. There are offshore financial centers that have been around long enough to establish a solid reputation in a strictly-regulated environment, but the lucrative nature of the offshore business has spawned new offshore centers in evry corner of the globe, needless to say, mostly untested. Switzerland's insurance industry, on the other hand, has passed over 140 years of testing without forfeiting on a single claim.|
|Simple to obtain||yes||variable||Simple to obtain. There are of course lawyers out there who will be willing to set up a trust in the time it takes for you to sign on the dotted line. But these lawyers may not have your best interests in mind, and you'd be justified in asking how effective such boilerplate trusts can be.|
|Legal insurance||yes||no||Legal insurance. Legal fees could be the undoing of anyone's trust. APC's offer built-in legal security.|
About the Author
Jurg M. Lattmann is a Swiss investment counsellor and expert in
Copyright © 1998 by Jurg M. Lattmann
The Investor's Library has reprinted this article from
Swiss Perspective with permission of the author.
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