Today's comment is by Bob Bauman, our Legal Counsel, and expert speaker at the upcoming Total Wealth Symposium in Panama City, Panama.
Dear A-Letter Reader,
The state of Vermont as an offshore tax haven?
Doesn't sound right, does it? Particularly when you know that Vermont has moved so far left on the American political spectrum that some conservative locals ruefully call it "The Peoples Republic of Vermont."
But there it was in The New York Times last week, a story that told us: "At conferences of the offshore insurance industry, next to the booth for Bermuda, can often be found one promoting Vermont. While that may seem strange for a chilly, landlocked state, Vermont is an offshore haven in one very real sense: It offers American companies lucrative tax breaks through unusual insurance arrangements...Vermont now rivals the Cayman Islands and Bermuda as the insurance destination of choice for American companies."
Indeed, Vermont, and more than two dozen states, South Carolina, Arizona and Hawaii among them, are cashing in on the ballooning demand for less costly, tax-advantaged captive insurance.
Better Insurance Coverage - Now Available Offshore
Looking for ways to provide alternative insurance coverage, medical professionals and many other business and professionals groups, have found an excellent alternative - a captive insurance company. These captive insurance companies are owned and operated by the professionals or corporate owners it insures. And under U.S. tax law, lower cost captives enjoy special tax breaks only available to insurance companies.
There are now over 5,000 captive insurance companies in operation. A large number of these are domiciled in Bermuda, where captive insurance began, and other offshore jurisdictions where laws are tailored for captives with more reasonable regulations. Out from under American law, they can operate with a more realistic level of capitalization that matches the risks involved. And these specialized offshore jurisdictions provide far better asset protection and insulation from domestic U.S. lawsuits as well. That's a major plus offshore has to offer over Vermont -- or any other American state where costly lawsuits easily can be filed and runaway juries routinely award unreasonably huge sums.
You're a Sitting Duck for Lawsuits
For Americans, lawsuits are a real hazard. With more lawyers and lawsuits per capita than any other nation, U.S. persons are sitting ducks. Anyone who conducts a business in the U.S. is an automatic target for litigation. One professional group that has been a special target for contingency fee lawyers are healthcare providers -- doctors, dentists, nurses, hospitals, clinics and pharmaceutical companies.
A new report issued last week, Jackpot Justice: The True Cost of America's Tort System , claimed the out-of-control U.S. legal system costs the U.S. economy US$865 billion annually in direct and indirect costs. Broken down by household, this figure represents a yearly "tort tax" of US$9,827 for a family of four. The authors claim: "These are astounding figures with real world consequences for American businesses and their employees. To put this in perspective, the average American household pays more annually in `tort taxes' than in federal income taxes."
This flood of lawsuits has driven business coverage and professional malpractice insurance costs sky-high. In some cases, these costs are far beyond companies and healthcare providers' ability to pay.
In many areas, medical specialists who are especially vulnerable to being sued, simply have moved away or stopped practicing. The American Medical Association identified 20 states facing a "medical liability crisis," where medical malpractice insurance costs are so high that physicians have to abandon their practices or "go naked" without malpractice coverage.
The Answer to These Sky-High Premiums
Captive insurance is big business. More than 40% of the Fortune 500 corporations and many multinational companies own one or more captives.
But captive insurance is not just for large companies. It can be cost effective for small businesses and professional associations, such as physicians, dentists, medical group practices and hospitals. If you own a business or a professional association with annual insurance costs of US$200,000 or more, forming or joining a captive insurance company may provide you significant cost savings, plus far better management and settlement of claims.
But don't let Vermont fool you.
If you want true, iron-clad protection, you need to establish a captive insurance company in an offshore jurisdiction where your corporate and professional assets are far beyond the immediate reach of U.S. tort lawyers and American state and federal courts.
That's the way it looks from here,
BOB BAUMAN, Legal Counsel
P.S. I've authored a detailed study on captive insurance that shows you exactly how it can save you money, cut taxes and allow lucrative investment of capital. Click here to read more about this special report.
