Use of Captive Insurance Companies in Estate Planning

Gordon A. Schaller and Scott A. Harshman have written an article entitled Use of Captive Insurance Companies in Estate Planning, 33 ACTEC Journal 252 (2008).

Here is an introduction to the article.

Rising insurance costs coupled with increasing self-insured risk is a major issue that many businesses face. In order to mitigate these risks, an increasing number of businesses are implementing captive insurance programs. A captive insurance company is a subsidiary or affiliate of business entities formed to insure or reinsure the risks of those entities. Reasonable insurance premiums paid to properly structured captives are deductible by the affiliated companies. Insurance companies are provided with special tax incentives. Properly structured, the premiums may be non taxable to the captive or offset by a deduction for reserves. Reserves and free surplus may be invested by the captive and retained in anticipation of future losses or to fund shareholder distributions. Today, the owners of thousands of businesses have begun to accumulate substantial pretax wealth through their captive insurance companies. The purpose of this article is to describe the history and requirements of captive insurance companies, focusing on the estate and business planning opportunities available to the owners of private companies.