.
|
.
|
 |
 . The Weekly Update news bulletin offer news and commentary regarding a number of issue which are of interest or concern to clients. Such topics may include offshore company formation, trusts, banking, investing, real estate, expatriate matters, residency & second passport matters, and other topics concerning the Dominican Republic & Panama. |
| Click Here To Use Our Reply Form |
.
..
|
Strategies for low investment cost & tax advantaged benefits . Many investors are of course interested in the idea of investing offshore, whereby the benefit for tax-free capital gains and privacy does exist. There are however two major problems that exist. Problem # 1 is, many offshore mutual fund companies still charge a high up front “load” or sales commission when making an investment. The idea of “no load” mutual funds has not made its way into the world of offshore investment products. So, anyone accustomed to investing with Fidelity, Vanguard, Twentieth Century, T. Rowe Price, Etc., with get a shock when they find out the up front sales charge for an offshore fund is as high as 7% (sometimes with the same company that offers a no-load fund in the US). In addition, many offshore mutual fund investment companies (and banks) will not accept a client that is a citizen or resident of the US and a number of other countries as well. So, what is the answer? . Well, we have found that some of the best deals for offshore mutual fund and stock investing can be found with of all things, Life Insurance Companies. What? Purchase more life insurance? The last time a life insurance agent visited us, we had to let the dog loose on him, in order to get him to leave! Fear not, this is not that kind of Life Insurance Company we are talking about. The Life Insurance Companies we found are large well-known companies (in Europe anyway), that cater to the expatriate or international investor. Many have assets in excess of ½ Billion US Dollars, and do business with clients from 80 countries. They are regulated, well managed, and are domiciled in jurisdictions that permit confidentiality and tax-free investing. Here is what we found: . Many offshore life insurance companies do offer what is known as “whole life insurance”. This means that you purchase a policy by making a one-time lump sum payment, or you invest over time for a fixed amount (perhaps the equivalent of US $ 5,000 or more per year). The minimum one-time payment is usually about US $ 50,000 which, is affordable, or in line with the type of investment many people would deposit into a brokerage account anyway. Of course the yearly or quarterly “periodic investments” is convenient for many clients that only wish to commit US $ 5,000 per year as well. . The policy allows you to do one of a few things. Either you can invest directly on a “no-load” basis into a number of quality offshore mutual funds managed directly by the Insurance Company, or you can invest into a number of “outside funds” as an additional option. What kind of “outside funds” are available? Funds offered by such companies as Fidelity Investments, GT Global, Invesco, Jardine Fleming, Templeton, and a host of other well-known mutual fund companies as well. What is the benefit to the investor? By investing though your Insurance policy, you pay no up front sales charge or “load”, as you would do if you invested with such offshore fund companies directly. In addition, many allow you to invest with up to six different mutual funds at any given time and also to switch between funds or “fund companies” without a charge or fee. This means you can move funds from a “Templeton” fund over to an “Invesco” fund all from the same account. . Apart from this, investors also have the option of taking a quarterly or yearly income from the policy (usually up to 10% per year) completely tax-free. So, what you have is a Life Insurance Policy (which can mention children or others as the tax-free beneficiary of the policy), a way to invest with offshore mutual funds on a “no load” basis, and a way to enjoy a tax-free retirement income as well. . But, believe it or not, this is not the best benefit in my opinion, for US investors especially. We found one company that, in addition to the above, also allows investors to transfer individual stocks or bonds (thus saving on capital gains) and also permits the investor to continue managing his existing brokerage account. How does this work? . In the case of an investor that purchased a stock, which has appreciated in value, the investor may transfer the stock directly to the Insurance Company as a way to “fund“ the policy. The Insurance Company will sell the stock under their name, thus paying zero capital gains tax on the sale proceeds. The client then has avoided capital gains tax on a stock he would have incurred had it sold it in his own personal account. In addition, since this particular company gladly accepts an offshore company or foundation as the account holder, there are strategies that allow the investor to “donate” the stock to a charitable entity, thus realizing a stepped up cost basis. Now for the short version in simple English, you get the stock out of your name, you avoid the possibility of paying tax on the “value” of the transfer, plus you pay no capital gains tax, all very legally. . The other option available is of course particularly interesting for investors have a “favorite” stockbroker they work with, and want to continue doing so after they have “moved” their assets to the Insurance Company. The Insurance Company will set up a new brokerage account in their name (as the custodian of the Insurance Policy in your name or that of your offshore structure), but allow you to trade the account with the same broker you have been working with all along. Of course any instructions for funds disbursements must come form the Insurance Company, but this sort of allows you to “have your cake and eat it too”. . Is such a policy “right” for you? That depends. If you are mutual fund investing, providing your time horizon is to keep your mutual fund investments for at least 6 or 7 years, then this makes sense for you. This is because there is a charge or load if you take out any amount over and above the yearly 10% tax-free and charge free withdrawal amount permitted. However this does not mean that you must keep your money invested in either stocks or bonds, as you may move your investments over to the money market fund at any time. You just must keep the policy for at least 6 or 7 years if you do not want to pay any sales charges or loads. . Also, there are annual maintenance fees imposed, as the company must make money somehow for everything they are providing. Normally, the annual maintenance fee is 1% of the account or policy value, plus other minor charges, which amount to less than US $ 100 per year in most cases. However, in my opinion, it is much better to pay 1% per year than to get “hit” with 7% up-front. Also, assuming your account value will increase each year by anywhere from 6% to 50% (depending upon what funds you are invested with or if you have your money in the money market fund), the one percent and other fees will not be important. This is because hopefully, after all is said and done, your annual statement will always show a balance that is higher than your original lump sum investment (as gains or interest earned from your investments added on). . All in all, in my opinion, a good deal for someone that wants to; invest without any up-front charges, wants a yearly tax-free income, and wants the tax-free passing of assets to a spouse or children in the bargain. . Important Note for US clients: The US tax code permits a spouse to take over an annuity policy of the other spouse without a tax consequence. This is a wonderful benefit, but serves no purpose when children or other persons are the beneficiary. If you pass away, and your children are the beneficiaries, the annuity will be liquidated and paid out to the beneficiary (children do not get the same tax benefit as a spouse). As a result, this amount will be trated as taxable income, possibly pushing the tax bracket even higher for the person obtaining the disbursement. For this reason, whereby children are the beneficiaries, an offshore annuity may be a much better idea than a US annuity. |
