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Choosing an Advisor

Choosing an Advisor

Selecting qualified professionals to assist with creating and maintaining your captive is essential to obtaining the benefits of captive ownership.  The independent attorneys and CPAs we recommend our clients engage are well-versed and experienced in the creation and maintenance of captives and are highly-rated by their peers.

Captives operate at the intersection of insurance law, tax law, accounting, actuarial sciences, and risk management.  It is a highly specialized industry.  Consequently, only a small percentage of the nation’s attorneys and CPAs have experience with captive insurance companies, and even fewer are familiar with the requirements of forming and/or operating them.

Generally, the role of one’s local adviser, with regard to your captive, will be to perform due diligence on the professionals that we recommend you engage, helping you insure that they are indeed qualified to advise you this special and limited area.

Asking your own attorney or CPA (unless they are among the experienced few) for an off-the-cuff opinion on the relevance or suitability of a captive is potentially unfair to both you and them for two reasons:

First, the adviser cannot be expected to answer your question competently without first doing extensive and costly due diligence.  If they sense or know from prior experience that you are unwilling to pay for the required due diligence, they must either admit their lack of experience or else seek to hide it by subtly dissuading you from asking too many more questions.  They may do this with statements like, “We don’t deal with captives because we consider them to be too aggressive.”  Or, “You can really get into trouble with those.”  Or, “I wouldn’t touch those with a ten foot pole.”

Second, the IRS rules were revised in 2005 and require that any written tax advice observe certain formalities and meet certain standards.  Complying with these standards is expensive and the penalties that attorneys or CPAs face if the IRS concludes that they failed to meet these standards are enormous—potentially six-figure fines or even disbarment.  Consequently, the cost of a typical tax opinion has gone from a few thousand dollars prior to 2005 to tens of thousands of dollars since.  Again, if your local attorney or CPA senses or knows from experience that you will be unwilling to pay the necessary cost to obtain a valid written opinion, they must refrain from offering the opinion.

In short, it’s unfair to ask your local attorney or CPA for an opinion about captives unless you are willing to pay the considerable cost it will take for them to do the required due diligence and formulate their report.


So…how can you get good advice?

You can get good advice by engaging an attorney or CPA who already has the knowledge and experience to offer “off the cuff” opinions. The attorneys that we recommend have this knowledge and experience. Furthermore, they are generally captive insurance specialists with no interest in competing with your local attorney/CPA for your existing business. Thus, in most cases your local adviser’s role with regard to your captive will be to simply perform due diligence on the professionals that we recommend.