831(b) Small Captive Insurance Company Owners Face January 1 Deadline To Fix Ownership Structure
FROM: Forbes, Oct. 15, 2016
By: Jay Adkisson
*Opinions expressed by Forbes contributors are their own.
Last year, I wrote about the new changes to 831(b). Among the changes is the new requirement that a captive insurance company which is privately held must be owned by the same generation of the family as the businesses which are being insured and paying premiums to the captive.
The concept is pretty simple. If Son owns the business, and Dad owns the underlying businesses, or vice versa, then the captive is not owned by the same generation and the new requirements are not met. If Sons owns both the captive the underlying business, or Dad owns both the captive and the underlying business, no problemo.
The problem is that a lot of captives that were qualifying under 831(b) were not created in compliance with this new requirement. Fortunately for these small captive owners, Congress did not apply the new requirements for tax year 2016, but instead they go into effect on January 1, 2017. This allowed captive owners to breathe a sigh of relief — for a while.
Now, we’re in the fourth quarter, literally and figuratively. The problem is that captive owners are quickly running out of time to remediate these captives.
The main solution is pretty simple in concept: Either move the captive or the operating businesses into the same family generation as the other.
The problem is that this is much easier said than done. Changing the ownership of the captive requires approval from the Insurance Commissioner, which isn’t instantaneous. It also requires estate tax planning and the drafting of documents to facilitate that planning. Valuations and sometimes appraisals have to be conducted. All this takes time.
Moving the underlying business is usually even more complex, since they typically have greater value and thus require correspondingly greater planning and implementation.
In fact, unless you rush the planning, with all the risks that entails, such planning will normally take somewhere between 30 and 60 days. As I write that, we’re already at October 15 — you do the math. Once we are inside November, there will still be planners willing to assist, but don’t be surprised if they start charging “rush” rates.
Link to original article: http://www.forbes.com/sites/jayadkisson/2016/10/15/831b-small-captive-insurance-company-owners-face-january-1-deadline-to-fix-ownership-structure/#78e861f45893