Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

InKnowVision September 2012 HNW Technical Webinar - Captive Insurance

460 views

Published on

Over the last several years InKnowVision has worked with several of their high income earning clients to incorporate captive insurance planning inside of their overall estate and wealth plans. Captives can be used to create income tax deductions, create wealth accumulation for a transitioning business owner and even act as a wealth transfer tool. We will be looking at some of the details you need to know to successfully market, design and implement this technical and powerful concept to a qualified client.

Learn more at www.inknowvision.com

Published in: Economy & Finance, Business
  • Be the first to comment

  • Be the first to like this

InKnowVision September 2012 HNW Technical Webinar - Captive Insurance

  1. 1. Technical Webinar©2012. InKnowVision LLC. All rights reserved. www.inknowvision.com
  2. 2. Captive Insurance CompaniesUpcoming Webinars: Scott Hamilton, CEO InKnowVision, LLC• HNW Marketing next Wednesday www.inknowvision.com 630-596-5090 x80 • Guest Presenter Chris Sidford• October 3rd Case Study• October 17th Technical • Guest Presenter Bob Scarlata(630) 596-5090 www.InKnowVision.com All Content Copyright © 2012 InKnowVision, LLC
  3. 3. Benefits Wealth Accumulation Favorable Tax Treatment Minimize/Reduce Insurance Costs Customize risk coverage Increased cash flow Wealth Preservation Asset Protection www.InKnowVision.com All Content Copyright © 2012 InKnowVision, LLC
  4. 4. Profile Client Successful business or profession Has uninsured risk Has insured risk willing to self insure Significant gross revenue - $10M Free cash of at least $500k or more www.InKnowVision.com All Content Copyright © 2012 InKnowVision, LLC
  5. 5. Profile Client Developers General Contractors Subcontractors Manufacturers Professional Services Firms Franchisees Restaurant / Hotel Chains Physician groups Hospitals www.InKnowVision.com All Content Copyright © 2012 InKnowVision, LLC
  6. 6. Case Study Manufacturing company (C Corp) $35M sales Plants around the world 300 employees Net profit - $4.5M annually Insurable risks abound Estimated premium to insure all risks totals $2M www.InKnowVision.com All Content Copyright © 2012 InKnowVision, LLC
  7. 7. Captive Formed Captive formed Insurance coverage selected and written by captive Premium paid $1.2M www.InKnowVision.com All Content Copyright © 2012 InKnowVision, LLC
  8. 8. Income Tax Year 1 Deduction to manufacturing company Saves approx. $400k in income tax Captive makes 831(b) election Captive has no taxable income www.InKnowVision.com All Content Copyright © 2012 InKnowVision, LLC
  9. 9. Income Tax Year 2 Deduction to manufacturing company Saves approx. $400k in income tax Captive has some taxable income Premium is non-taxable (if less than $1.2M Investment income on reinvested underwriting profit is taxable. www.InKnowVision.com All Content Copyright © 2012 InKnowVision, LLC
  10. 10. Process - Qualification Conversation Basic qualification and Risk Analysis Phone call with client and advisors Cost - Benefit Analysis Go-No Go Decision www.InKnowVision.com All Content Copyright © 2012 InKnowVision, LLC
  11. 11. Process - Implementation Engage Manager Formation Actuarial Risk coverage selection Premium Payment Policy Issue www.InKnowVision.com All Content Copyright © 2012 InKnowVision, LLC
  12. 12. Process - Time Evaluation – 1-2 weeks Implementation – 4-6 weeks www.InKnowVision.com All Content Copyright © 2012 InKnowVision, LLC
  13. 13. Captive Insurance Companies Insurance company Formed to insure risk Liability Operating Risks Business Risks Exclusions Deductibles www.InKnowVision.com All Content Copyright © 2012 InKnowVision, LLC
  14. 14. Captive Jurisdictions  Utah Nevis  Nevada Anguilla  Vermont Bermuda  Kentucky  Delaware  District of Columbia www.InKnowVision.com All Content Copyright © 2012 InKnowVision, LLC
  15. 15. Types of Captives Pure Captive – Single Family House Cell Captive – Apartment Building Less expensive (Revenue Ruling 2008-8) Uses the 11 or more subsidiary safe harbor (Rev. Rul. 2002-90) Requires pooling of risk www.InKnowVision.com All Content Copyright © 2012 InKnowVision, LLC
  16. 16. Types of Captives Single Parent Captive Group Captive Homogeneous – same industry Heterogeneous – multiple industries www.InKnowVision.com All Content Copyright © 2012 InKnowVision, LLC
  17. 17. Types of Captives Foreign corporations taxed as US taxpayer Foreign corporation not taxed as US taxpayer Domestic companies – US Taxed www.InKnowVision.com All Content Copyright © 2012 InKnowVision, LLC
  18. 18. Capital Required Jurisdiction Requirements $125k (Cayman) $100k (Anguilla) $27k Nevis $250k+ (Vermont and Nevada) Reasonableness and premium requirements Depends on premiums History of claims paid www.InKnowVision.com All Content Copyright © 2012 InKnowVision, LLC
  19. 19. Tax Issues Premium Deductibility by US taxpayer Ordinary and necessary Real insurance www.InKnowVision.com All Content Copyright © 2012 InKnowVision, LLC
  20. 20. Real Insurance Risk sharing (spread risk over a number of insured) Harper – 30% OK Rev. Rul. 2002-89 - 50% OK Pooling – form of reinsurance Actual exposure to risk of loss Risk shifting – move the risk off of the balance sheet of the insured www.InKnowVision.com All Content Copyright © 2012 InKnowVision, LLC
  21. 21. Tax Issues Income to the captive If captive is a: Foreign corporation and not a CFC – no US tax But 4% excise tax if writing domestic business CFC or 953(d) company – US tax (unless 831(b) election) Domestic company – US tax (unless 831(b) election) www.InKnowVision.com All Content Copyright © 2012 InKnowVision, LLC
  22. 22. 953(d) Election Election to be taxed as a US company No excise tax on insurance premiums Can own US real estate Company files US tax return as if domestic company Reduced filing requirements Company must post LOC equal to 10% of gross income or have assets in the US equal to that amount www.InKnowVision.com All Content Copyright © 2012 InKnowVision, LLC
  23. 23. 831(b) election For small insurance companies Includes captives Companies making the election can exclude up to $1.2M in net premium (premium less underwriting costs and expenses less losses) Must pay tax on investment income www.InKnowVision.com All Content Copyright © 2012 InKnowVision, LLC
  24. 24. Wealth Transfer Consider establishing children or grandchildren’s trusts as owners Underwriting profit passes gift tax and GST tax free to trust and its beneficiaries. www.InKnowVision.com All Content Copyright © 2012 InKnowVision, LLC
  25. 25. Distributions from Captives Distributions are taxable when paid out from the captive (pure or cell) Taxable as dividends May be a favorable rate If company is sold then sale proceeds are taxed at capital gains rates www.InKnowVision.com All Content Copyright © 2012 InKnowVision, LLC
  26. 26. Planning Idea Captives do not have to have one owner Part owner by client Part owned by trust for kids www.InKnowVision.com All Content Copyright © 2012 InKnowVision, LLC
  27. 27. Costs Pure Captive $80,000-190,000 in year of formation $72,000-115,000 in subsequent years Fee is also related to premium (pool costs) www.InKnowVision.com All Content Copyright © 2012 InKnowVision, LLC
  28. 28. 715 Enterprise DriveOak Brook, IL 60523 Questions or Comments? (630) 596-5090www.InKnowVision.com Scott Hamilton, CEO InKnowVision, LLC www.inknowvision.com 630-596-5090 x80 All Content Copyright © 2012 InKnowVision, LLC

×