Captive Options

Positives:

• Private company owners may take up to a $1.2 million deduction annually for existing “self-insured” risks.
• Captive acts as a deductible, executive deferred compensation plan (with no employee-match required).
• Profits are protected from creditors and judgments.
• Custodial trust can hold the stock of the captive (for asset protection or estate planning purposes).
• Profits are converted from ordinary income rates to dividend / long-term capital gains rates.
• No limit on profits, excess profits tax or required dividend.

Negatives:

• Legislative Risk: Section 831(b) has been in existence since 1974; there is legislation pending to raise the annual cap to $2.025 million and index it for inflation.
• Investment Default and Principal Loss: Risks are directly tied to the credit rating of the investment portfolio.