BANKRUPTCY PRIVILEGE AND INSOLVENCY PROTECTION
There are many reasons to look into life insurance from Liechtenstein. The best known are bankruptcy privilege and insurance secrecy. There are also remarkable options for the design of the succession. Last but not least, it is not the insurance company that manages the assets here, but the personal asset manager of the policy holder. Even real estate can be included here.
TEXT: JOHANNES FIALA; PHOTOS: PATRICK MEROTH, CLOSE UP
Value preservation through protection against insolvency:
Whereas insurance secrecy is primarily intended to ensure discretion, insolvency protection is intended to preserve the assets of a life insurance policy for the family and protect them from the covetousness of third parties. Both are also known in Switzerland. Whereas in Switzerland assets can be secured for the benefit of descendants and spouses, insurance law in Liechtenstein also permits beneficiaries to be non-marital partners.
Retirement planning for entrepreneurs:
In Liechtenstein and Switzerland, the protection of a pension plan carries far more weight than the interests of possible creditors. This is not only evident in the privileged treatment of private life insurance policies. Statutory and occupational pension provision on an annuity basis is also almost completely protected against insolvency and enforcement there. In Germany, courts have ruled that not only future pension rights can be attached.
Risk of occupational pension provision
Recent rulings show that in the event of a company’s insolvency, the company pension scheme (bAV) of the entrepreneur and his close relatives usually becomes worthless. However, these practical dangers are still being pushed aside by some consultants and almost all intermediaries in their own commission interests. In a nutshell, for the private sector, life insurance in Liechtenstein is at least as interesting as the partial relocation of a company to Switzerland.
Total domestic loss:
A look at the latest report of the Petitions Committee of the German Bundestag shows how topical the dangers to the entrepreneur’s old-age provision can be: an entrepreneur had become insolvent. His life insurance policy with pension commitment had been seized in full and without any insolvency protection. The responsible ministry is aware of this dilemma and would like to make improvements soon – at a rather low level.
Bankruptcy Privilege as Design:
For this reason, there will continue to be customers with a high level of interest in insurance via foreign countries in the future. If a German insolvency administrator appears in Liechtenstein, he has in principle no other options than any other creditor. The insurer will not provide him with any information, at most politely point out the insurance secrecy. It is crucial to implement the design in good time, as there are also so-called contestation periods abroad.
Advertising bankruptcy security is not desirable domestically. The bankruptcy privilege should not apply, for example, if German nationals with habitual residence in Germany choose foreign law as the contractual basis and if the contract is concluded at the same time with the involvement of a “German intermediary” (e.g. intermediary, broker, banker). If bankruptcy protection is important to the insurance customer, he must go in person to purchase his policy locally, i.e. not sign on German soil. In addition to the necessary contacts abroad, a professional advisor will also have financial and actuarial experts at his side in order to be able to find sensible solutions for even complex structures at the present time.
Asset protection through residency:
For optimal design, he will “refer” to an honorary professional abroad. In order to rule out any legal discussion about “connecting factors in Germany” from the outset, the investor can seek assistance in obtaining a residence there. Such a domicile does not have to be maintained indefinitely, because under European insurance contract law it is possible, and therefore harmless, if the domicile is subsequently changed again. When the insurance contract is concluded, this foreign domicile must then be the habitual residence. This presupposes circumstances at this point in time which indicate that the investor is not only temporarily staying at this location and that the regular focus of his personal living conditions is located here.
Commission or fee-based consulting:
Both ways of remuneration are only uncritical if the foreign choice of law can be effectively agreed on the basis of domicile. A harmful intermediary can be spoken of not only if a remuneration is paid to an intermediary, but also in the case of correspondence, telephone calls, other initiations by persons who are otherwise also active as intermediaries for insurers – the customer can leave this to the lawyer of his confidence as a safeguard, because he is not an intermediary.
Providing for estate planning:
Such insurance shells are also used to accumulate assets “outside the estate” by way of anticipated succession or estate planning. Real estate can also be economically wrapped in such an insurance shell, which the experts also call “wrapping”. In principle, only securities can be placed in a policy. The custody account may be with a bank in Switzerland or abroad. Real estate, located in Switzerland and/or abroad, can also be converted into securities. This is traditionally also implemented wherever the real estate transfer tax is high – only shares then change hands on sale. So the property was transferred once to, say, a foreign corporation – the shares are held in custody by a trustee or they are then rolled into the policy. When it comes to protecting one’s own assets, it is advisable to diversify – not only in the sense of classic asset management, but also according to legal systems, in order to make the options there fruitful in a targeted manner. The solution does not always have to be domestic.
Johannes Fiala, Lawyer, MBA Financial Services (Univ.Wales), MM (Univ.), Certified Financial and Investment Advisor (A.F.A.), EC Expert (C.I.F.E.), Banker De-la-Paz-Str. 37, 80639 Munich Tel. 089/17 90 90-0 Fax. 089/17 90 90-70 E-mail: email@example.com
(finest.finance! 3/2006, 110)
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About the author
Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
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