Liechtenstein Constitutive Privilege

(* the following description about Liechtenstein Constitutive Privilege is from publication of Alexander T. Skreiner - "The Advantages of Liechtenstein Annuities and Life Insurance")

If we were to ask why clients seek and set up international structuring solutions, a recurring answer involves their need for transferring and passing on assets. They require not only a tax efficient structure but have a particular interest in questions of time, mode, and amount.

In general, it may be said that the generation responsible for the transfer has an interest in being able to influence the arrangements for as long as possible. This is certainly a completely legitimate and vital interest; after all, who wants to depend on others merely because the assets were transferred too early?

Life and annuity insurance solutions, depending on the life of one or several persons, are particularly suited to meet this requirement. An insurance contract becomes due either whenits term has matured or when the insured event takes place. By selecting a long term, the maturity date can be significantly delayed. But what if the death of the insured person occurstoo early? In such a case, the specification of several insured persons and the stipulation “Due at the death of the last insured person” allows the time of payment to be pushed far into the future.

If, in contrast, independently of the life of the insured persons, a specific term of the insurance contract is to be assured in every case, then a fixed term clause may be used. This clause stops the policy from maturing until a specific or specifiable date, such as a particular birthday of the beneficiary or the successful completion of his or her education. In the event of the death of the insured person, the benefit payout is postponed either until an exact day X or until the occurrence of a specified event. The insurance contract remains valid and continues to run up to that day.

As soon as the maturity date has been set, the conditions linked to the mode defined by the policy holder come into effect. Thus the policy holder may define the sequence of beneficiaries and also the percentage distribution between several beneficiaries of the same rank. Members of the next rank receive the insured sum only if all the members of the previous rank have predeceased them.

An annuity insurance policy may also allow a distinction to be made between annuity payments (to all or specific beneficiaries) and a complete or partial capital payment (to an individual or all beneficiaries). These payment variants may also be combined; thus the policy holder’s daughter can receive a third of the policy value as a capital sum at his death, whereas his two sons receive “their” thirds only in the form of 10-year annuities. If the options just outlined are insufficient due to a very complex initial situation or the distribution of the assets is subject to discretionary decision authorizations, it makes sense to appoint a foundation or trust as the sole beneficiary of the insurance contract and then use the instruments offered by these facilities to define the payment modes. This structure is alsosuited to clients from countries in which trusts or foundations may be used in a way that offers tax advantages.

Life insurance policies may be set up in conjunction with trusts, foundations, and other company types for tax reasons (various jurisdictions with different structuring options) or to meet additional discretionary needs of the client.

Regarding the benefits, it should be generally noted that both natural and legal persons may be designated as beneficiaries, either revocable or irrevocably. If a revocable arrangement hasbeen made, then a single provision or even the entire benefit arrangement may be changed without the need for lawyers, quickly and flexibly, with merely the need to inform the insurance company in writing.

The question of who may act as a contractual partner of the insurance company also relates to the constitutive privilege. This partner will often be a natural person, especially when the life insurance is treated preferentially in its tax environment: The preferential conditions are then linked to this person. However, a legal person or a trustee may well act as the policy holder and conclude the insurance contract on behalf of the company. In contrast, it is obvious that only a natural person may be individually insured, and must be identified, as explained earlier, as well as giving his or her written agreement.

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