Overview

Captive Monetization Strategy

APPLICATION OPPORTUNITIES

  • Leverages surplus without utilizing a loan structure and the complications related thereto.
  • Replaces tax attributable to dividend (surplus) distributions as there is no distribution.
  • Creates a tax-free income stream for the Captive owner/family with appropriate planning.
  • Mitigates or eliminates estate tax for the Captive owner/family with appropriate planning.
  • Optimizes dead capital on the balance sheet and provides enhanced creditor protection.
  • Creates a tax efficient wind down or exit strategy when closing a captive as alternative source of funds are created which can fund tax liabilities.
  • 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 as there are not any tax-free distributions. This is a tax mitigation strategy.
  • Tax liability insurance is available through a Lloyds of London syndicate at +/- 4.00% of the tax liability.

OVERVIEW

  • Captive manager contacts Allied Professional Group, (“APG”) to obtain information and due diligence.
  • Captive manager / owner receives bespoke illustrated cash flow projection analysis.
  • Captive manager / owner decides on the desired outcome – max or min cash flow or max or min death benefit or max or min income or tax minimization or a blended solution. All structures are bespoke.
  • Collateral pledge amount determined to fund desired outcome. (min USD 10.0mm)
  • Captive owner / designee(s) applies for a life insurance policy.
  • Captive pledges collateral at closing upon approval of the local regulator. Although dividends and distributions must be approved by local regulators posting collateral is subject to interpretation by jurisdiction.
  • Captive receives Direct Pay Letter of Credit (“DPLoC”) in return – this is NOT a loan from the Captive.
  • Collateral diminished each year as life insurance cash values accumulate and grow, therefore the pledge reduces each year.
  • At death of the insured the life insurance proceeds are outside of the Captive.
  • At death of the insured the life insurance proceeds flow income tax free and, if structured properly, estate tax free to beneficiaries.
  • Prior to death, life insurance contract policy loans may supplement income on zero tax basis.
  • In instances of premature death, a portion of the life insurance proceeds settle balance.
  • Utilizes collateral pledge and NOT a loan from the Captive.

TAX SAVINGS

Savings are measured against top marginal rates for capital gains and/or dividend rates:

  • Long-term capital gains on a qualified dividend distribution are taxed at a rate of 20.0%.
  • An additional 3.8% applied for the Healthcare Act therefore a 23.8% effective rate.
  • Short-term capital gains are taxed at the ordinary income tax level of the recipient/owner, up to 37%.
  • Pure tax savings range between 19.5% to 100% depending on if funds generated offset taxes in a wind-down or exit strategy.

INFORMATION CONTAINED HEREIN IS FOR EDUCATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSIDERED LEGAL NOR TAX ADVICE

Disclaimer

Allied Professional Group (APG) affiliates with cross disciplinary experts in legal, tax, accounting, audit, actuarial and compliance in order to deliver to captive managers and captive owners solutions to optimize and to enhance the captive experience.  

Our proprietary approaches provide tax efficient avenues to transform excess capital into material financial benefits.

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