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.
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.