Asset Protection | Captive Insurance Companies
In 2014, Mississippi joined the list of what currently includes 18 states that allow domestic asset protection trusts (DAPTs). These vehicles allow settlors, or grantors, to create irrevocable trust, as well as be beneficiaries of said trusts, all while achieving creditor protection. Specifics related to statutes of limitations and exemptions vary from jurisdiction to jurisdiction, but DAPTs are an effective way to achieve asset protection while retaining certain rights and powers with respect to an irrevocable trust.
A Captive Insurance Company is a closely held insurance company whose insurance business is primarily supplied and controlled by its owners. Generally, the risk that is insured through the captive organization is also a “captive risk” (i.e. a risk of the owners or of affiliated organizations). Generally, the original insureds are the principal beneficiaries. The owner or the owner’s business deducts premiums paid to the captive. These amounts would otherwise be taxed at personal or corporate tax rates.
Since the captive does not recognize any taxable premium income, this sets up a tax arbitrage that permits the owner to accumulate investment assets at an accelerated rate, resulting in wealth accumulation and giving rise to numerous opportunities.
Captive insurance companies may be formed in various on-shore and off-shore jurisdictions and protect against a variety of insurable risks, many of which aren’t typically covered by most insurance policies.
Various requirements must be met under the applicable statutes, as captive insurance companies are, in fact, licensed insurance companies. Nonetheless, captives are great vehicles for risk management that also present a path to accumulate wealth outside of a business owner’s respective estate.