Business Risk I nsurance Via Sm all Captive I nsurance Cos. Schem atics Presented By: Tom King Proprietary Property
Disclosure • CIC Services, LLC hereby expressly authorizes each person to whom these materials are given by CIC Services, LLC or its affiliates or authorized agents (and each employee, representative or other agent of such person) to disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of the transaction described herein, or effected hereby, and all materials of any kind (including all opinions or other tax analyses) that are provided to such person related to such tax treatment and tax structure. In the case of a document which is a contract or agreement, the persons authorized to make such disclosure include all parties thereto. • Neither CIC Services, LLC nor any person who provided this material to you render legal, insurance regulatory or tax advice. Your advisors should be consulted for their interpretations of legal, insurance regulatory or tax considerations. Any projections provided reflect current conditions and will likely change in the future. Any illustrations provided are an illustration of values and benefits only and is not to be construed as a contract. To the extent that insurance products are illustrated, this proposal is invalid without the illustration of contract values and the accompanying supplemental footnote pages. To the extent that investment products are illustrated a current prospectus must accompany this proposal. • “CIRCULAR 230 DISCLOSURE: IN COMPLIANCE WITH TREASURY DEPARTMENT REQUIREMENTS, WE INFORM YOU THAT ANY FEDERAL TAX ADVICE CONTAINED IN THIS COMMUNICATION AND ANY ASSOCIATED ATTACHMENT IS NOT INTENDED, AND CANNOT BE USED, FOR THE PURPOSE OF (A) AVOIDING PENALTIES UNDER THE INTERNAL REVENUE CODE OR (B) PROMOTING, MARKETING OR RECOMMENDING TO ANY OTHER PARTY ANY TRANSACTION OR MATTER SET FORTH HEREIN.” Proprietary Property
Important! • The presumption for all of the following slides is that the client has substantial non-tax insurance needs such that a captive insurance company is needed by the client without regard to any potential tax benefits or other ancillary benefits. • Some of the slides that follow only demonstrate the potential ancillary benefits of a captive insurance company that has been formed for substantial non-tax casualty, loss and liability purposes. Proprietary Property
Captive Insurance Company (CIC) Schematic ( 3 ) Capstone Reinsurance Com pany Capstone receives 51% of (2) CIC Capstone retransfers all premiums premiums received back to participating Reinsures 51% of claims made by (2)CIC over the year less any (1) Business and 51% all other claims/ expenses CICs in the risk pool. Retransfer Premium ( 1 ) Business ( 2 ) CI C ( 4 ) SM LLC Can Pay Tax Premium 0% Tax Bracket on premiums up Single Mem ber LLC Deductible Ins SM LLC is wholly owned by (2) CIC to CIC Profits Premium up to holding all membership interest $ 1 .2 Million per year $1.2 Mil Per Year Upon the death of the Business P&C policies In Exchange for Property & Tax savings= $ 6 0 0 ,0 0 0 Owner, all assets will move to the Casualty Insurance policies CIC can CIC upon which time Family Trust recall assets can liquidate its share of the CIC to pay CIC Own 100% of SM LLC claims, etc. to obtain the cash/ assets from (2.1) Family Trust Profits are invested in Investments (4) SM LLC with Hedging CIC Initial Stock ( 4 .1 ) ( 4 .1 ) Capital Hedging Investment in ( 2 .1 ) Fam ily Trust Using Market Investment Equities with Owns all the stock of (2) CIC. Grade Index limited risk Benefits Family only after Life with death Business Owner’s Death Benefit
Exit Strategies Future Exit Strategies To Consider 1. Owner can transfer by gift or bequest to family Member (s) 2. Owner Can Sell Ownership Interest to: Family Member (s), Unrelated Party, Back to CIC 3. Merge with Another CIC 4. Liquidate the CIC 5. Exist Indefinitely 6. Invest into a Preferred Allocation Limited Liability Company Proprietary Property
Captive Insurance Company (CIC) Transition Schematic ( 2 ) CI C ( 4 ) SM LLC ( 5 ) PaLLC Preferred Allocation LLC Owns 100% of (2) SMLLC is (2) CIC - 95% Preferred Membership (4) SMLLC wholly owned by SMLLC Converted to Ow ns PaLLC w ith CI C Interests with no distribution Rights, is CIC holding all Contributing guarenteed return of investment plus membership Assets to PaLLC preferred return at (7) Business interest Owner’s death Business Owner - 95% Common Controlling Membership Rights,100% Voting Rights including Distribution I nvestm ents w ith Hedging ( 7 ) Business ( 2 .1 ) Fam ily Ow ner ( 5 .1 ) ( 5 .1 ) Trust Invests 5% of Investment Investments in LLC asset value. Life Insurance Market Owns 100% of CIC stock Receives 95% of Policy with Equities with the Common Limited Risk Limited Risk Member Rights, Tax Deferred Yearly Tax on 100% Voting Grow th Capital Gains Rights and I ncom e Proprietary Property
Captive Insurance Company (CIC) Transition Schematic ( 5 ) PaLLC ( 2 ) CI C Ownership of Preferred Membership Interests Preferred change from CIC to Family Trust. Prem ium s Stop Mem bership Family I nterests & CI C is Trust Assets will be taxed as capital gains on the value of assets. Value of assets are Liquidated reduced due to Future Value, Access and Shares Marketability Issues of Stock I nvestm ents ( 2 .1 ) Fam ily (6) Trust ( 5 .1 ) ( 5 .1 ) I RS Capital Investments in Investment Life Gain Tax Transfers all CIC Market Equities Federal Insurance Policy on LLC stock back to CIC in with Limited Risk with Limited Risk Governm ent reduced exchange for Yearly Tax on Tax Deferred Value Preferred Capital Gains Grow th membership interest and I ncom e and the SM LLC Obligation Proprietary Property
Captive Insurance Company (CIC) Exit Strategy Schematic ( 2 .1 ) Fam ily ( 5 ) PaLLC ( 7 ) Business Preferred Allocation LLC Trust Ow ner Preferred Common Owner Owner Family Trust - 95% preferred Owns 95% Preferred Cash Flow Membership Interests with no Membership Interests distribution Rights of PaLLC Distributions Assets at Receives all PaLLC Business Owner - 95% Common Business assets upon the death Cash Flow Membership Interests with Distribution owners of the Business Owner death Rights Tax-Free ( 5 .1 ) ( 5 .1 ) I nvestm ents in Market I nvestm ent Life I nsurance Policy w ith Lim ited Risk Equities w ith Lim ited Risk Yearly Tax on Capital Gains Tax Deferred Grow th and I ncom e PaLLC borrows cash against life insurance death benefit Non-Taxable Loans Non-recourse debt to LLC allows special allocation of basis to Common Member in LLC equal to Loan. Tax Free Death Benefit Replenishes LLC’s Negative Capital Account Proprietary Property
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