agenda · asset protection •wealthy businesses and owners are litigation targets •creditors...

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Agenda

• Background – Key Statistics

• Captive Basic Structure

• Captive Benefits and Qualifications

• Captives and the IRS

• Surgical Captive Services

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Captive Strategy: Transfer Uninsured Risk to Captive

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Captive Insurance Company Illustration

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Captive Basic Structure

• Non-Corps (LLC, S-Corp, Sole Proprietorship, etc.)

• Up to $1.2 million in Annual Insurance Premiums [IRC 831(b)]

• Premiums deductible to the Business & not taxable to the Captive

Shareholders

Operating

Entities

Sub Sub Sub

Shareholders Family

Key

Employees

Estate Plan

Trust

Captive

Deductible Premiums

Insurance Policies

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Captive Insurance Company Benefits

• Ownership & Control

• Asset Protection

• Insurance Coverage Flexibility

• Reduced Insurance Costs

• Tax Savings

• Improved Cash Flow

• Wealth Accumulation & Preservation

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IRS “Safe Harbors” for Captives

• Three IRS Safe Harbor Rulings

• Single Parent Captive (Rev. Ruling 2002-89)

• Multiple Subsidiaries (Rev. Ruling 2002-90)

• Group Captive (Rev. Ruling 2002-91)

• As part of a Captive Feasibility Study, the Captive Manager will

analyze which IRS Safe Harbor is best for your business.

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What Qualifies as Risk Shifting vs. Risk Distribution?

• Revenue Ruling 2002-89: > 50% of risk exposure is derived from unrelated parties

Business 49% of Risk

51% of Risk

Unrelated

Parties

Captive

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IRS Compliant Captive – Rev. Ruling 2002-89

More than 50% of unrelated risk

$2.2 Premium (2017)

Business

Captive

$1,200,000

Premium

$1,200,000

Reinsurance Premiums

Insurance Pool

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President Signs New Tax Act with Small Insurance Company (Sect. 831(b)) Changes

• President Obama signed into law on December 18, 2015.

• Captive Insurance Changes Take Effect on January 1, 2017.

• Raised Annual Premium Limits on 831(b) election from $1.2 Million to $2.2 Million.

• Put two Diversification Tests in place to try to prevent some of the estate planning abuse around the 831(b) Captive.

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Asset Protection

• Wealthy businesses and owners are litigation targets

• Creditors have no legal claim on the Captive’s assets

• Only owners of the Captive can make an insurance claim

• The Captive structure creates independent wealth & investment

diversification

• Foreign Captives may have an extra layer of protection

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Parent

LLC

#1

LLC

#2

LLC

#3

Asset Asset Asset

Captive

Investment Structuring

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Surgical Captive Services

Captive Formation

• Feasibility Studies

• Cost Benefit Analysis

• Strategy Sessions

• Captive Structure & Domicile Selection

• Turnkey Captive Formation

• Financing

• Benchmarking Studies

Captive Management

• Accounting

• Actuarial

• Compliance

• Claims Management

• Legal

• Audit

• Taxation

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