TAKE NO PRISONERS:  PITFALLS AND POSSIBILITIES WITH   CAPTIVE INSURANCE COMPANIES                           September 29, ...
IntroductionWith the prospect of very significant tax increases on the horizon,   the Captive Insurance Company is being t...
What is a Captive?• A licensed insurance company formed by a business owner  to insure the risks of related or affiliated ...
Why Consider a Captive?• Manage risks• Premiums received by captive are invested rather than “lost”• May issue property an...
Who is a Good Candidate for a Captive?•   Businesses with uninsured risks•   Businesses with a history of low insured loss...
Types of Insurable Risks           Insured Risks                    Retained Risks•   Workers’ Comp                  •   D...
Reinsurance      Captives can purchase reinsurance to protect against risks.• "Reinsurance" can be thought of as a means b...
Tax Considerations of a Captive• Definition of “Insurance Company” – More than half of the business  during the taxable ye...
Small v. Large Captives• Large Captives   – No limitation on premiums received   – Must establish a reserve deduction actu...
Taxation of Small Captives• Deduction by operating company purchasing insurance   – Ordinary and necessary business expens...
What is Insurance?    Insurance provided must involve fortuity or uncertainty, risk shifting                             a...
Economic Family Doctrine• Risk must be transferred outside of economic family  to be true insurance – Rev. Rul. 77-316   –...
Parent-Child Captive Structure               Operating Company             PREMIUMS          INSURANCE                    ...
Brother-Sister Captive Structure                 Operating Company      PREMIUMS                        INSURANCE         ...
Rejection of the Economic Family Doctrine• Carnation Company v. Commissioner, 640 F.2d 1010 (9th Cir. 1981) and  Cloughert...
Balance Sheet Test• Company will be allowed to deduct premiums paid only  if there will be a net change on the company’s b...
Service Gives Up• Rev. Rul. 2001-31   – Service stated that it would no longer raise economic     family doctrine   – Serv...
Safe Harbor Rulings• Rev. Rul. 2002-89   – 50% of premiums from unrelated businesses paid to subsidiary     captive are su...
Safe Harbor Rulings• TAM 200816029   – Limited partnerships with a common general partner will     not be treated as separ...
Risk Distribution• Rev. Rul. 2002-91   – A distribution of risk allows an insurer to reduce the     possibility that singl...
Risk Distribution Pools• Formed for exchange of insurance business among captives to  spread risk and enhance participatio...
Structure and Formation of Captives     –   Insurance audit/Feasibility study     –   Determine Type of Captive     –   In...
Insurance Audit/Feasibility Study• Audit existing insurance coverages   – Determine what risks should be retained and what...
Determine the Type of Captive• This outline primarily targeted at “pure captive”• Pure captive is most simplistic form of ...
Pure Captive Design                                         Shareholder(s)                                    (Same or Rel...
Income Tax Considerations• Is a large or small captive appropriate?• Onshore captive must obtain United States Employer  I...
Corporate Formation and Place of Domicile          – Offshore v. Onshore • Offshore    – Caribbean nations have relaxed st...
Capitalization• To obtain an insurance license, a captive is required to have a  minimum amount of capital.• Beware of “Th...
Management – Officers and Directors• It is recommended that management company be engaged to  handle captive operations.• ...
Shareholders• May be individuals, business, or trust• Estate planning opportunities arise if a trust set up for the  busin...
Other Considerations• Insurance Certificate   – Must obtain one or more insurance licenses in appropriate jurisdiction   –...
Other Considerations• Bank Account   – Separate bank account should be opened for captive   – Account may be opened in the...
Captive Regulatory Management•   Regulatory management of captives should include:       (i) Insurance company accounting ...
Exit Strategies• Creating captive is time and cost intensive, a client should  not expect to immediately pull funds out of...
Potential IRS Challenges•   Legitimate Business Reason for Forming Captive•   Payment of Excessive Premiums to Captive•   ...
Legitimate Business Purpose• Captive must possess a legitimate business reason to  avoid being characterized as a sham by ...
Excessive Premiums• Code § 162(a) – insurance premiums paid by taxpayer are  deductible if connected directly with taxpaye...
Excessive Premiums – Reliable Actuarial Method• Gulf Oil Corp. v. Commissioner, 89 T.C. 1010 (1987)    – Premiums charged ...
Consequences of Excessive Premiums• Premium-paying company will lose income deduction   – Most likely have to pay interest...
Avoiding Excessive Premiums• To avoid determination that premiums paid are excessive and  increase amount of deduction ava...
Life Insurance• Should not be primary asset owned by captive• Excessive amounts of life insurance inside captive can trigg...
Loan-Backs• Used to invest captive funds back into operating business and  usually takes form of bond issuance (fundamenta...
Estate Planning Benefits of Captive• Captive owned by trust for benefit of spouse and/or  descendants may create substanti...
Case Study• A high net worth client owns successful retain sales operations  (multiple companies) in the United States. Th...
Formation of Captive Insurance Company    Irrevocable“Defective” Grantor       Trust                           Captive Ins...
Case Study• As insurance premiums paid by client’s business to Captive,  businesses benefit   – Enhanced liability protect...
Premiums Paid to Captive Insurance Company                                Irrevocable “Defective”                         ...
Case Study• The $1.2 million in premiums is paid to the captive year after  year. After a few years of premiums, we can as...
B usiness Structure Follow ing R ecapitalization                              Taxpayer                 220 V              ...
Tax p a yer’s G ift an d S ale o f N o n voting S tock to Tru st I                         G ift and S ale o f 11 ,100    ...
Case Study• By engaging in these preliminary transactions, client ensured  that future growth of family businesses will in...
C u rre n t B u sin e ss S tructu re                                           T a xp a ye r                   220 V      ...
Case Study• Client has enhanced business and estate planning, efficiently  transferred wealth during lifetime to his famil...
Conclusion• Clients should enter into the captive insurance company realm  with their “eyes wide open”• Professionals shou...
Disclaimers•   The information contained in this presentation is for illustration purposes    only and not intended to be ...
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Take No Prisoners Captive Insurance Co Presentation

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This presentation focuses on Captive Insurance Companies and their use in business, estate and asset protection planning

Take No Prisoners Captive Insurance Co Presentation

  1. 1. TAKE NO PRISONERS: PITFALLS AND POSSIBILITIES WITH CAPTIVE INSURANCE COMPANIES September 29, 2010 J. SCOT KIRKPATRICK, ESQ. KAREN S. KURTZ, ESQ. (404) 658-5421 (404) 863-8225scot.kirkpatrick@chamberlainlaw.com karen.kurtz@chamberlainlaw.com
  2. 2. IntroductionWith the prospect of very significant tax increases on the horizon, the Captive Insurance Company is being touted as one of the best solutions for business owners to the impending avalanche of taxes Washington may unleash. Even without the tax advantages, the captive is an excellent business planning vehicle. 2 -2-
  3. 3. What is a Captive?• A licensed insurance company formed by a business owner to insure the risks of related or affiliated businesses.• A captive permits a business to manage its risks while potentially providing substantial benefits to that related business.• Captives provide an opportunity to insure against liabilities that are generally uninsurable or hard to insure• Over 50% of the Fortune 1500 have captives 3 -3-
  4. 4. Why Consider a Captive?• Manage risks• Premiums received by captive are invested rather than “lost”• May issue property and/or casualty insurance coverage against wide variety of possible liabilities• Insure against commercially unavailable or unaffordable liabilities• Access to reinsurance market• Limited tax benefits• Potential estate planning opportunity 4 -4-
  5. 5. Who is a Good Candidate for a Captive?• Businesses with uninsured risks• Businesses with a history of low insured losses• Profitable Companies• Clients willing to undertake the cost and management of the formation and administration of the captive 5 -5-
  6. 6. Types of Insurable Risks Insured Risks Retained Risks• Workers’ Comp • Deductibles• General Liability • Construction Defects• Health Insurance • Loss of Key Customer• Auto • Loss of Key Employee• Collision • Loss of Key Supplier• Professional Liability • Administrative Action• Errors & Omissions • Litigation• Directors & Officers • Policy Exclusions• Builder’s Risk • Contract Claims 6 -6-
  7. 7. Reinsurance Captives can purchase reinsurance to protect against risks.• "Reinsurance" can be thought of as a means by which an insurer transfers some or all of the risk under a policy of insurance to another insurer or insurers.• For example, a captive may only want to be exposed to $500,000 per general liability claim. As a way to limit its exposure, it could purchase reinsurance to pay 50% or all of a claim exceeding $500,000 7 -7-
  8. 8. Tax Considerations of a Captive• Definition of “Insurance Company” – More than half of the business during the taxable year is derived from issuing insurance or annuity contracts or reinsuring risks. I.R.C. §§ 816(a), 831(c).• Must be a “C” corporation for U.S. income tax purposes – Treated as a per se corporation• Life Insurance Company vs. Property and Casualty Insurance Company – Mean life reserves must not exceed 50% of total reserves to be property and casualty insurance company – Property and casualty insurance companies follow rules of a C corporation with only certain exceptions 8 -8-
  9. 9. Small v. Large Captives• Large Captives – No limitation on premiums received – Must establish a reserve deduction actuarially• Small Captives – Premiums received limited to $1.2 million or less per year – Election must be made to be treated as small captive under I.R.C. § 831(b) by attaching statement of election to Form 1120-PC. • Election is not revoked unless the Service consents or upon premiums exceeding $1.2 million in a year – Exempt from income tax on first $1.2 million of premiums received 9 -9-
  10. 10. Taxation of Small Captives• Deduction by operating company purchasing insurance – Ordinary and necessary business expense under Code § 162• Premiums up to $1.2 million exempt from income tax for captive – Under Code § 831(b)• Owners of a small captive are taxed on dividends received from company.• Investment income of a small captive is taxed at both the captive level and shareholder level.• If a small captive does not make an election under Code § 831(b) it will be taxed under Code § 831(a). 10 -10-
  11. 11. What is Insurance? Insurance provided must involve fortuity or uncertainty, risk shifting and risk distribution.• Risk Shifting – Actual transfer of risk from insured to the captive – Position supported by Service until recently – Economic Family Doctrine – Economic Family Doctrine later rejected by Courts for Balance Sheet Test• Risk Distribution 11 -11-
  12. 12. Economic Family Doctrine• Risk must be transferred outside of economic family to be true insurance – Rev. Rul. 77-316 – Parent-child captive structure and brother-sister captive structure not permitted under this approach 12 -12-
  13. 13. Parent-Child Captive Structure Operating Company PREMIUMS INSURANCE POLICIES SubsidiarySubsidiary Subsidiary Captive InsuranceCompany A Company B Company 13 -13-
  14. 14. Brother-Sister Captive Structure Operating Company PREMIUMS INSURANCE POLICIES SubsidiarySubsidiary Subsidiary Captive InsuranceCompany A Company B Company 14 -14-
  15. 15. Rejection of the Economic Family Doctrine• Carnation Company v. Commissioner, 640 F.2d 1010 (9th Cir. 1981) and Clougherty Packing Co. v. Commissioner, 84 T.C. 948 (1985) – Relied on the Balance Sheet Test but did not explicitly reject Economic Family Doctrine• Humana, Inc. v. Commissioner, 881 F.2d 247 (6th Cir. 1989) – Explicitly rejected Economic Family Doctrine – Allowed brother-sister captive structure, but not parent-child• Harper Group v. Commissioner, 979 F.2d 1341 (9th Cir. 1992) – Premiums paid by BOTH parent and subsidiaries deductible if approximately 30% of premiums from third party insureds 15 -15-
  16. 16. Balance Sheet Test• Company will be allowed to deduct premiums paid only if there will be a net change on the company’s balance sheet when the loss is paid – Does not allow deductions by companies that are too closely related – Allows brother-sister captive structure – Does not allow parent-child captive structure unless there are a sufficient number of third party insureds 16 -16-
  17. 17. Service Gives Up• Rev. Rul. 2001-31 – Service stated that it would no longer raise economic family doctrine – Service will use case-by-case analysis to challenge risk shifting and risk distribution – Will carefully scrutinize capitalization and parental guarantees 17 -17-
  18. 18. Safe Harbor Rulings• Rev. Rul. 2002-89 – 50% of premiums from unrelated businesses paid to subsidiary captive are sufficient for risk shifting/distribution – 10% of total premiums from unrelated business is not enough• Rev. Rul. 2002-90 – 12 subsidiaries, with no more than 15% and no less than 5% of total risk insured, enough for risk shifting/distribution• Rev. Rul. 2005-40 – 12 subsidiary test satisfied if all insureds have common owner provided that each entity was nondisregarded entity 18 -18-
  19. 19. Safe Harbor Rulings• TAM 200816029 – Limited partnerships with a common general partner will not be treated as separate entities – Much disputed decision• Rev. Rul. 2009-26 – When determining risk shifting/distribution in reinsurance contract, risks of ultimate insured must be examined – Primary (underlying) insurance policy 19 -19-
  20. 20. Risk Distribution• Rev. Rul. 2002-91 – A distribution of risk allows an insurer to reduce the possibility that single claim will exceed premiums received. – The pooling of premiums is necessary to reduce the potential that a related insured is paying for its own risks and obtaining tax deduction.• Unrelated business creates sufficient risk distribution – No floor, but 2% not enough, and 30% is enough 20 -20-
  21. 21. Risk Distribution Pools• Formed for exchange of insurance business among captives to spread risk and enhance participation in non-related business• Combines the investments of many captives into single account held by a reinsurance company – Risk transferred from individual captive through quota share of reinsurance agreement – Contract issued between reinsurance company and each captive for reinsurance company to retain funds in trust account for a certain period 21 -21-
  22. 22. Structure and Formation of Captives – Insurance audit/Feasibility study – Determine Type of Captive – Income Tax Considerations – Corporate Formation and Place of Domicile – Capitalization – Management – Shareholders – Underwriting/Development of Policies – Insurance Certificate – Bank Account – Reporting Requirements – Investment Restrictions – Captive Regulatory Management 22 -22-
  23. 23. Insurance Audit/Feasibility Study• Audit existing insurance coverages – Determine what risks should be retained and what risks should be transferred. – Determine if a risk should be retained, or retained to a certain amount with reinsurance on any claims higher than that amount. – Audit business risk insurance coverages in relation to the risks the business faces. 23 -23-
  24. 24. Determine the Type of Captive• This outline primarily targeted at “pure captive”• Pure captive is most simplistic form of captive and is common format for small captives• Other Types of Captives – Association Captive – Group Captive – Agency Captive – Rent-a-Captive – Protected Cell Captive 24 -24-
  25. 25. Pure Captive Design Shareholder(s) (Same or Related Owners)Client’s OperatingBusiness & Entities Premiums paid to Captive Captive Insurance Company Insurance Policies issued to Operating Business and Related Entities 25 -25-
  26. 26. Income Tax Considerations• Is a large or small captive appropriate?• Onshore captive must obtain United States Employer Identification Number (EIN) from Service.• Offshore captive must determine whether Code § 953(d) election should be made to treat captive as U.S. taxpayer – If election made, must obtain EIN from Service 26 -26-
  27. 27. Corporate Formation and Place of Domicile – Offshore v. Onshore • Offshore – Caribbean nations have relaxed standards such as lower capitalization requirements – Sometimes not as responsive or accommodating – Accessibility of government agencies substantially limited • Onshore – Some domestic jurisdictions have recently become more accommodating to captive owners – Larger capitalization requirements 27 -27-
  28. 28. Capitalization• To obtain an insurance license, a captive is required to have a minimum amount of capital.• Beware of “Thin Capitalization.”• Capitalization requirements vary among jurisdictions.• Onshore jurisdictions generally have higher capitalization requirements than offshore jurisdictions. 28 -28-
  29. 29. Management – Officers and Directors• It is recommended that management company be engaged to handle captive operations.• The members of management company may also serve as most of officers and directors of captive.• Owners or representatives of the captive may consider having a limited role in the management of the company.• Limiting client or client representative involvement in management and operations of offshore captive may limit requirement to file certain tax returns (inc. state income tax returns) 29 -29-
  30. 30. Shareholders• May be individuals, business, or trust• Estate planning opportunities arise if a trust set up for the business owner’s descendants captive. This concept will be discussed in detail later in this presentation. 30 -30-
  31. 31. Other Considerations• Insurance Certificate – Must obtain one or more insurance licenses in appropriate jurisdiction – Consideration must be given to type of insurance captive will issue to ensure appropriate licenses obtained • i.e. workers’ compensation insurance or medical insurance• Underwriting and Development of Policies – Actuary often used to review type and amount of insurance that will be issued to operating company 31 -31-
  32. 32. Other Considerations• Bank Account – Separate bank account should be opened for captive – Account may be opened in the United States regardless of whether the captive is an onshore or offshore entity.• Reporting Requirements – Depending upon the jurisdiction in which a captive is organized, there may be local reporting requirements.• Investment Restrictions – Restrictions exist for how premiums paid to captive may be invested. For example, many jurisdictions require a captive to maintain reserves equal to 30% of the premiums it writes in a year, and such reserves may be held in cash, money market funds, or government bonds or CDs with terms of 90 days or less. 32 -32-
  33. 33. Captive Regulatory Management• Regulatory management of captives should include: (i) Insurance company accounting and records (ii) Regulatory filing and reporting (iii) Quarterly financials (iv) Annual captive efficiency review (v) Liaison with investment manager, tax preparer, auditor, and regulatory body• Captive management company can assist in processing claims. 33 -33-
  34. 34. Exit Strategies• Creating captive is time and cost intensive, a client should not expect to immediately pull funds out of a captive.• Exiting a captive should only be done after determination by experienced professionals that continuation of captive is not in client’s best interest. 34 -34-
  35. 35. Potential IRS Challenges• Legitimate Business Reason for Forming Captive• Payment of Excessive Premiums to Captive• Role of Life Insurance in Captive• Loan-Backs• Thin Capitalization 35 -35-
  36. 36. Legitimate Business Purpose• Captive must possess a legitimate business reason to avoid being characterized as a sham by the Service• Legitimate Business Reasons – To obtain coverage where insurers are unwilling to do so – To reduce premium payments – To control risk – To increase cash-flow – To gain access to reinsurance market – To create diversification – To balance coverage – Tax planning (Rev. Rul. 2001-31) 36 -36-
  37. 37. Excessive Premiums• Code § 162(a) – insurance premiums paid by taxpayer are deductible if connected directly with taxpayer’s trade or business – Must be ordinary and necessary business expense• Challenges on two grounds – Taxpayer is paying premiums that are too high for amount of insurance he is receiving – Taxpayer is suddenly obtaining a significantly higher and unnecessary amount of insurance 37 -37-
  38. 38. Excessive Premiums – Reliable Actuarial Method• Gulf Oil Corp. v. Commissioner, 89 T.C. 1010 (1987) – Premiums charged by captive and amount of insurance provided by captive must be based on reliable actuarial estimation of risk of loss – If premiums consistently in great excess of actual losses paid, indicator that: • Taxpayer could be attempting to evade taxes by taking advantage of Code § 831(b) exclusion OR • Company could be retaining risk and captive is not providing insurance• Non Docketed Service Advice Review, 2002 I.R.S. N.S.A.R. 20160 – If a captive charges exactly $1.2 million in premiums, it suggests that actuarial method was not used and captive is tax fraud 38 -38-
  39. 39. Consequences of Excessive Premiums• Premium-paying company will lose income deduction – Most likely have to pay interest and penalties• Captive may have taxable income• Gift Tax Issues – If captive is owned by business owner’s descendants or trusts then transfer may be subject to gift tax – If no gift tax return was filed, may be subject to failure to file penalties also – Client may consider filing gift tax return (Form 709) every year a premium is paid to the captive 39 -39-
  40. 40. Avoiding Excessive Premiums• To avoid determination that premiums paid are excessive and increase amount of deduction available, company can attempt to find insurable risks for which third party insurance is not commercially available or not commercially affordable• Risk must have some degree of fortuity or uncertainty• Getting more insurance so can justify paying higher premiums 40 -40-
  41. 41. Life Insurance• Should not be primary asset owned by captive• Excessive amounts of life insurance inside captive can trigger Service to challenge captive structure as attempt to deduct life insurance premiums• No income tax deductions for life insurance premiums paid• Purchase must be for a significant non-tax purpose• When life insurance is not primary asset of captive, but minority portion of diversified investment portfolio, likelihood of successful challenge by Service is significantly reduced 41 -41-
  42. 42. Loan-Backs• Used to invest captive funds back into operating business and usually takes form of bond issuance (fundamentally no different than a loan)• Limited guidance on loan-backs and no objective standard to determine whether will be considered bona fide indebtedness• Often analyzed in loan-back to premiums paid ratio – If significant portion of premiums paid are borrowed, concerns of circular cash flow arise• Service determined loan-back invalid where a captive loaned 97.5% of assets to operating business – FSA 200202002 (September 28, 2001) 42 -42-
  43. 43. Estate Planning Benefits of Captive• Captive owned by trust for benefit of spouse and/or descendants may create substantial estate planning benefits – Captive should not be includible in business owner’s taxable estate and should not be subject to creditor’s claims• Captive can be initially formed by trust or trust may gain ownership of captive through gift or sale – Gift or sale of any portion of a captive must be disclosed on a Form 709 Gift Tax Return 43 -43-
  44. 44. Case Study• A high net worth client owns successful retain sales operations (multiple companies) in the United States. The client desires to maintain control of the family business, for now, while better protecting his investment in the family businesses and planning for the efficient transfer of his business and wealth to future generations of family members.• Client creates offshore captive insurance company, taxable as U.S. corporation by making a Code § 953(d) election. – Provides critical and cost effective business insurance coverage to the client’s principal U.S. businesses – Captive is owned by a separate dynasty trust created by client for benefit of his spouse and descendants 44 -44-
  45. 45. Formation of Captive Insurance Company Irrevocable“Defective” Grantor Trust Captive Insurance Company Details 100% Shareholder • Corporation formed in offshore jurisdiction. • Taxed as a U.S. Corporation • Insures affiliates. • Formed to insure key men, litigation expenses, business losses, etc. Captive Insurance Company 45 -45-
  46. 46. Case Study• As insurance premiums paid by client’s business to Captive, businesses benefit – Enhanced liability protection from boarder insurance coverage – Reduced insurance costs for certain types of coverage – Significant ancillary tax benefits – Captive can grow and accumulate substantial wealth if premium revenues exceed claims and expenses paid over time – Wealth accumulation will inure to benefit of client’s spouse and descendants since captive is wholly owned by the trust created for their benefit 46 -46-
  47. 47. Premiums Paid to Captive Insurance Company Irrevocable “Defective” Grantor Trust $1.2 Million in 100% Shareholder premiums paid to Insurance Company ($1.2 MillionAffiliates Reserve Deduction) Captive Insurance Company 47 -47-
  48. 48. Case Study• The $1.2 million in premiums is paid to the captive year after year. After a few years of premiums, we can assume that the captive has $5.0 million in assets.• To facilitate efficient transfer of business interests to descendants, client creates dynasty irrevocable “defective” grantor trust for benefit of spouse and descendants, recapitalizes his companies by issuing voting and nonvoting common stock and then gives and sells nonvoting common stock to trust in exchange for cash and promissory notes. Importantly, the value of the stock sold should be reduced since the premiums reduce the net operating income of the business. 48 -48-
  49. 49. B usiness Structure Follow ing R ecapitalization Taxpayer 220 V 970 V 21,780 N V 96,030 N V Taxpayers Children 2 V 20 V 198 N V 1,980 N VM y C o., Inc. M y O ther C orp. 49 -49-
  50. 50. Tax p a yer’s G ift an d S ale o f N o n voting S tock to Tru st I G ift and S ale o f 11 ,100 N V Sha res o f M y C o ., Inc. P ro m isso ry N o te fo r M y C o ., Inc . S hare s Ta xpayer Taxpayer Irre voca ble Trust I P rom isso ry N o te fo r M y O th er C orp. Shares G ift and Sale o f 49,500 N V S hares of M y O ther C o rp. 50 -50-
  51. 51. Case Study• By engaging in these preliminary transactions, client ensured that future growth of family businesses will inure to primary benefit of his descendants, but client maintains current control of businesses through retention of voting common stock. 51 -51-
  52. 52. C u rre n t B u sin e ss S tructu re T a xp a ye r 220 V 970 V 4 6 ,53 0 N V 1 0 ,68 0 N V T a x p a ye rs C h ild r e n 2 V 20 V 198 NV 1 ,9 80 N V T a x p a ye r Irre vo c a b le T ru s t IM y C o ., In c. 1 1 ,10 0 N V 4 9 ,50 0 N V M y O th e r C o rp . 52 -52-
  53. 53. Case Study• Client has enhanced business and estate planning, efficiently transferred wealth during lifetime to his family, maintained control of and better protected his businesses, saved income taxes and facilitated growth of new business by making insurance premium payments to a company that is already owned, effectively, by the next generation 53 -53-
  54. 54. Conclusion• Clients should enter into the captive insurance company realm with their “eyes wide open”• Professionals should be utilized in the creation and maintenance of a captive insurance company to ensure that Internal Revenue Service requirements are met• When done properly, a captive insurance company can be an invaluable planning tool for many clients 54 -54-
  55. 55. Disclaimers• The information contained in this presentation is for illustration purposes only and not intended to be formal tax or legal advice.• The rules imposed by IRS Circular 230 require us to state that, unless it is expressly stated, any opinions expressed with respect to a significant tax issue are not intended or written by the practitioner to be used, and cannot be used by the recipient, for the purpose of avoiding penalties that may be imposed on the recipient or any other person who may examine this correspondence in connection with a Federal tax matter. -55-

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