Archive for March, 2016

Success Story: The Importance of the “Second Opinion”

March 15th, 2016 No comments

After a presentation at Heckerling a few years ago, an attorney in the audience came up to me to introduce himself and let me know he may be calling me for help on a case.  A full year went by when he finally emailed me details of something he was working on.

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It turns out his client was the owner of a very successful global company and had a large existing life insurance portfolio.  The client and advisor was working with an agent who had a very long term and particularly close relationship to the family.

The reason the attorney brought me in was due to his skepticism regarding some work the agent was doing.  Something didn’t seem right but he couldn’t put his finger on it.  For full post, click here…

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Regulatory Changes re: Planning with Captives

March 11th, 2016 No comments

TOPIC: Has the PATH Act Muddied the Way for Planning with Small Captives?

MARKET TREND: The use of small captive insurance companies primarily for estate planning purposes may be a thing of the past.

SYNOPSIS: Captive insurance companies can allow businesses to obtain insurance protection against a wide variety of property and casualty (“P&C”) losses more affordabily and are taxed under many of the same rules applicable to traditional insurance companies. Internal Revenue Code (“Code”) § 831(b) provides small and mid-sized businesses with access to this important insurance market, encouraging these businesses to build up reserves that could protect against losses and thus support overall business longevity. However, the IRS had become concerned that the special tax rules under Code §831(b) were being used in “micro captive” arrangements primarily to accumulate wealth in these smaller captives for wealth transfer and estate planning purposes, not for insurance protection. The PATH Act attempts to both enhance the business benefits of small captives and address the perceived estate planning abuse by making two major changes to Code §831(b): (1) increasing the amount of premium income a captive can receive while still qualifying for Code §831(b) treatment, and (2) imposing two new tests, a risk diversification test and an ownership diversification test, one of which a captive must meet to qualify under Code § 831(b). These changes are effective for all existing and new small captives beginning in 2017 and after.

TAKE AWAYS: While the new diversification tests potentially limit the possible estate planning benefits attributable to small captive arrangements, 831(b) captives created primarily to provide P&C insurance coverage to businesses should not be greatly impacted. However, as there are no “grandfathering” provisions in the new legislation, non-compliant existing small captives must be restructured before 2017 to meet one of the required tests. Owners of these existing captives should contact their insurance and legal advisors now to review their current ownership structures for compliance. Owners of closely-held businesses have shown increasing interest in captive insurance arrangements and a way to reduce the costs of their P&C insurance and take advantage of certain tax rules applicable to small captive insurance companies. While the recent legislation has increased certain benefits with regard to small captives, it also may limit the ability of captive owners to use the captives for ancillary estate planning benefits.

For full post, click here…

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