Frequently Asked Questions

CMS solves four distinctly different challenges a Captive owner encounters for a minimal expense. (Note that AFR is applied to the economic benefit received but this too may be capitalized.)

• Captives have constraints and risk planning rules to follow when permitting a loan to their owners.
• Captives are not designed to create wealth nor to generate tax-free income for their owners.
• Captives have dead capital on the balance sheet in the form of excess capital and surplus.
• Captives at end-of-life cycle or the wind down stage create additional tax liabilities for owners.

The CMS solution solves four distinctly different challenges a Captive owner encounters.

• CMS creates an avenue to access excess capital and surplus without utilizing a loan structure.
• CMS provides potentially tax-free income and estate tax-free transference for its owner.
• CMS utilizes and leverages the excess capital and surplus on a tax advantaged basis.
• CMS alleviates the tax burden on dividend distributions at end-of-life cycle wind down stage by creating an alternative source of income to offset the monies lost to taxes paid.

CMS relies on clearly defined and supported Internal Revenue Code rules and supporting case law.  There is no aspect of the strategy that pushes the envelope, nor could it be deemed aggressive.  Furthermore, this is not a tax avoidance strategy as it creates external free capital from a life insurance policy. It is not purely a tax / financing strategy.  It is a tax mitigation strategy.

The Captive owner and affiliated advisors should find comfort in the fact that an international tax advisory and consulting firm stands behind the strategy and is willing to advise if required.  Furthermore, the captive insurance practice leader and the former head of the IRS’ captive insurance division are willing to avail themselves for educational purposes.  Additionally, tax liability insurance through a Lloyds of London syndicate is available at a price of +/-4.00% of the potential tax liability.

The Captive Monetization Strategy is unique because is it a truly an almost cost neutral solution to a significant structure problem associated with utilizing a traditional loan strategy.   The financing partner does not require anything more than a collateral pledge recognizing the strength of the life insurance policy (funding mechanism) as sufficient collateral.  The collateral pledge amount is determined by the difference between the cash surrender value in the policy and the total amount required to fund the strategy. 

As the Captive owner receives an economic benefit the life insurance policy owner will have to pay the Applicable Funds Rate (“AFR”) on the collateral pledge, however this amount may be capitalized and collateralized by the Captive as well.