October 16, 2018

Offshore CIC

Closely Held Insurance Companies (CICs)

CICs are a nice way to implement an offshore asset protection plan that is different from the traditional offshore LLC or offshore trust.

CICs are used by small-to-medium business owners more for income tax reduction and estate planning; but because the CIC is set up offshore, it turns into a terrific asset protection tool as well.

What is a CIC?

A CIC is just what it sounds like; it literally is your own insurance company that can sell insurance to a number of different people or entities (although most of the time your CIC will sell insurance to your own small business). Due to the fact that this material is meant only to be a cursory look at CICs, how they function as income tax reduction and estate planning tools are not covered.

How Does a CIC Work as an Asset Protection Tool?

CICs are typically created offshore due to the lower initial capitalization requirements. Because CICs can be created offshore, they provide a layer of asset protection like any offshore company.

Example:

Mr. Smith has a manufacturing company which he owns 100% of the stock.  Mr. Smith generated $2,000,000 of take-home income after expenses from his company, and he does not need the money to live on.  Mr. Smith is 58 years old with 3 children, a spouse, and a net worth including the value of his company of $15,000,000.

Mr. Smith could set up a CIC that could be owned entirely by his children.  Mr. Smith’s company would then purchase $1,000,000 worth of insurance from the CIC for various types of insurance coverage.

Mr. Smith’s company would pay this premium each year, and several good things are accomplished with this scenario:

1)  Mr. Smith transferred $1,000,000 into an offshore CIC which is owned by his children.  This transfer was done without gift taxes (and with a good claims’ history, the children will be able to keep that money).

2) Mr. Smith did not have to take the money home and pay income taxes on it.

3) Mr. Smith did not have to figure out how to asset protect the $600,000 he would have taken home after tax (in the 40% tax bracket) since the money has not only been transferred to the children’s CIC but is in an offshore CIC.

The money in the CIC is there in the event there are any insurance claims, but realistically that money will be used by the children as part of their inheritance.

CICs are not for everyone, but they are something that should be explored by anyone looking to implement an offshore asset protection plan.  The CIC also must have as its primary business purpose the sale of insurance.  Make sure when looking into the topic you have an advisor who can counsel you on the proper way to set up a CIC so it can be set up in compliance with all the applicable laws.