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Big business enjoys huge tax advantages by creating Captive Insurance Companies. Successful PCs can also use this powerful tool for wealth accumulation and risk management.
Keego Harbor, Michigan. May 11, 2007 In 25 years of developing asset management plans for physicians and other entrepreneurs, Keith L. Mohn, CLU, CHFC, CAPP, CWPP has seen every financial planning technique. He helps PCs achieve their wealth accumulation and transfer goals with the captive insurance company (CIC).
Captives arent for everyone, emphasizes Mohn. But for PCs fitting a certain profile, a CIC may be the Holy Grail of planning.
Ideal candidates — successful owners/professionals with predictable annual profitability of $500,000 — can deduct up to $1.2 million annually; convert current income into capital gains; create tax deductible war chests against business disasters; self-insure risks with pre-tax dollars, knowing funds are inaccessible to creditors of business or owners.
The CIC underwrites risks of companies owned by the same owner(s)–risks associated with the practice or medical facility that are not easily or cheaply covered by commercial insurance.
Risks that may be covered by a CIC:
Administrative Actions
Computers, Data Recovery
Key Employees
Employee /Executive/Professional Liability
Business Income Loss
Litigation Expense
eCommerce Risk
Directors/Officers
Kidnapping/Ransom
Sexual Harassment
Income Tax Indemnity
Deductibles/Gap Coverage
Policies can be labeled litigation expense onlycreating a pre-tax war chest to fight lawsuits, while protecting assets against claims. Premium dollars are moved out — away from creditors. Because premium payments are made for value its difficult for creditors to prove fraudulent transfer.
Advantages
Better statutory protection for reserves due to requirements to pay claims. Creditors are less likely to force judgments.
When no longer useful, captives can be terminated, assets distributed, capital gains declared, taxes paid — providing optimum tax benefits.
Captives formed under 831(b) have straightforward tax reporting — like a simple S corporation. Smart entrepreneurs engage professionals experienced in this section of the code to ensure compliance.
The properly structured CIC is a powerful planning tool for the right business. Compared to traditional retirement plans, captives offer improved tax benefits, asset protection, wealth accumulation and wealth transfer,
Keith L. Mohn, CLU, CHFC, CAPP, CWPP — financial consultant, lecturer, charter member of Wealth Preservation Institute, Wealth Protection Alliance, President Benefit Solutions Group. LLC, in Keego Harbor, a full service financial consulting and planning firm specializing in high net worth individuals, business owners and medical professionals since 1983. For information on planning strategies, email [email protected] or visit www.benefitsolutionsgroup.biz