Here at Nevantage, we are passionate about using Nevada’s unique tax, asset protection, business planning and trust laws to provide competitive and wealth-generating advantages to our clients. With this goal in mind, founder Mark Smallhouse moved from California to Nevada to expand his practice and have a direct impact on the direction and drafting of Nevada’s corporation, LLC and asset protection laws. Mr. Smallhouse is a longstanding member of the Nevada State Bar Association committee responsible for drafting revisions to Nevada’s business laws. He contributed substantially to the drafting of Nevada’s Series LLC laws and to laws providing for charging order protection for small corporations and single member LLCs.
Each one of our attorneys has the same passion for this work—and our clients’ success—as Mr. Smallhouse. Nevantage’s success comes from our ability to creatively solve problems and collaboratively work with our clients to find ways to improve, strengthen and grow their businesses. We work closely with our clients to develop and implement legal and business planning strategies and provide our services as cost-effectively as possible by offering fixed-fee arrangements that provide alternatives to the billable hour.
We are a different sort of corporate- and business-planning attorneys. We strive to go beyond simple competence in the field. We take pride in our work and aren’t satisfied until we’ve exceeded our clients’ expectations. Learn more about the work we do below.
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Advanced Business and Entity Planning
You can join the many Fortune 500 companies who are minimizing taxes and maximizing asset protection by establishing subsidiaries as Nevada business entities. This strategy is one that provides unique asset protection and tax advantages for businesses and trusts. Attorneys at the Nevantage Law Group, in Reno, NV, helped draft the current revisions to Nevada business law. Company founder Mark Smallhouse has been a member of the Nevada State Bar Committee that drafted these same business laws. Read More
Asset Protection and Wealth Planning.
It is only natural that once you have accumulated assets and wealth, you want to find the best ways to protect them and reduce taxation to a minimum. At the Nevantage Law Group, Attorneys Mark Smallhouse and Steve Ganim have the insider knowledge and experience needed to help clients achieve that goal for their businesses or personal wealth. Read More
Captive Insurance
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What is a Captive
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Risk Management and Tax Benefits of Captives
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Types of Captives
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Procedures for Setting up Captives
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Example of Tax Savings
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Exhibit A Captive Tax Benefits Over 10 Years
What is a Captive
A captive insurance company is a private insurance company that is generally set up as a subsidiary of a parent operating company. The captive accepts premiums that the parent company would have paid to a third-party insurance company, and in return the captive covers any claims made against the parent company. The premiums paid to the captive are paid by the parent as a deductible expense. For many years, only large companies were able to enjoy the benefits from operating their own captive insurance companies. Most captives were established to provide coverage where insurance was unavailable or unreasonably expensive. In recent years, however, the IRS has encouraged the formation of what is known as a small captive corporation, pursuant to Code Section 831(b). Under Section 831(b), a captive insurance company can receive up to $1.2 million per year annually in premium payments free from federal taxation. Otherwise, only the income generated by the investments of the captive’s premiums are subject to federal tax. While it previously was not uncommon for captive insurance companies to be formed offshore in jurisdictions such as the British Virgin Islands, the Bahamas or Bermuda, recently, a number of states have adopted extremely favorable captive insurance company laws to encourage the formation of captive insurance companies within the United States. Among those states are Vermont, South Carolina, Wyoming and Nevada. The State of Nevada provides an ideal place to form a captive insurance company. Not only does the State of Nevada not have a corporate income tax, but Nevada’s captive insurance company laws are among the most beneficial in the nation. As a result of Nevada’s laws, captive insurance companies can be efficiently and cost-effectively formed within the State. CloseRisk Management and Tax Benefits of Captives
Captive insurance companies not only provide attractive risk management elements, but a properly-structured and managed captive insurance company can provide the following tax and non-tax benefits:- $1.2 million federal and state tax deduction annually to the parent company for the insurance premiums paid to the captive;
- Ability to remove the parent company’s earnings from creditors’ reach in a tax-favored nature;
- Opportunity to accumulate and/or transfer wealth in a tax-favored vehicle;
- Distributions to captive owners at favorable income tax rates (20% dividends tax rate);
- Ability to insure risks that otherwise would be uninsurable or not economically viable to insure;
- Reduction in the insurance premiums paid by the parent corporation; and
- Ability to control settlement and payment of insurance claims.
Types of Captives
Captives primarily come in three varieties and are referred to either as a pure captive, a group captive, or as a series captive insurance company. Pure Captives. Pure Captives are either set up in a parent-child or a brother-sister relationship. Examples of these types of captives are set forth in Figure 1.1 and 1.2 below. Parent-Child Relationship. Figure 1 represents a simple pure parent-child captive, which has a common owner or parent, an operating subsidiary and a related captive insurance company. The operating business pays insurance premiums to the captive insurance company in exchange for the captive’s issuance of policies insuring the risks of the operating business. Figure 1.1

Procedures for Setting up Captives
The formation of a captive insurance company starts with the conducting of a feasibility study. The main purpose of the feasibility study is to determine whether the formation and use of a captive would be economically viable and beneficial for a specific business. The feasibility study will determine the amount of capital required to form the captive, and the cash flow necessary to support the captive, in order to make it economically viable. In most cases, the attorneys or consultants who perform the analysis will refund a significant portion of the fee if the feasibility study leads to a negative recommendation as to whether it would be beneficial to proceed with the formation of the captive. After the feasibility study, the next step for setting up a captive is to have an actuarial study performed by an accredited actuary, which will examine the proposed risks to be underwritten by the captive, what range of premiums should be charged for that insurance, and what capital and reserves will be necessary to adequately back those risks. The actuary will also develop detailed financial projections. After the actuarial study is complete, the domicile and organizational structure for the captive will be determined. The final step is the preparation and submittal of the application for an insurance license. During the feasibility, actuarial and licensing stages, the need for a qualified insurance manager on the planning team is very important.Business that Might Benefit from the use of Captives
The use of a captive should be considered by entities that meet the following criteria:- Profitable businesses seeking substantial annual adjustable tax deductions;
- Businesses with multiple entities or those that can create multiple operating subsidiaries or affiliates;
- Businesses with $300,000 or more in sustainable operating profits;
- Businesses with requisite risk currently uninsured or underinsured;
- Business owners interested in personal wealth accumulation and/or family wealth transfer strategies; and
- Business owners that are looking for asset protection.
Example of Tax Savings
The following example sets forth a situation in which the owners of a real estate investment and management company would find it advantageous to set up a captive insurance company: John, Ted, and Bill are each one-third owners of a real estate investment company that acquires, manages, and improves apartment buildings (“Apartment Company”). Apartment Company manages six separate apartment building complexes that have been purchased by limited liability companies set up by John, Ted, and Bill, which separately own each apartment complex. Apartment Company is an S corporation with 15 employees, and collectively Apartment Company, together with the LLC’s, has $1.2 million of taxable income taxed to each of John, Ted, and Bill at a 50% rate, including federal and state taxes. John, Ted, and Bill would like to minimize the income tax liability associated with the funds earned by Apartment Company and each of the LLC’s and accumulate the monies received by Apartment Company and each of the LLC’s in a more tax-advantage basis, which will be beyond the reach of their personal, Apartment Company, and LLC creditors. The shares of any captive insurance company set up by John, Ted, and Bill would be held in a separate LLC or asset protection trusts for the benefit of John, Ted, and Bill and their families. John, Ted, and Bill retained a Nevada attorney and a captive insurance management company to perform a feasibility study analyzing Apartment Company’s and each of the LLC’s current insurance coverages to determine risks that are either self-insured or underinsured. That feasibility study identified 15 risks and designated separate coverages for each of those risks, including employment practices, excess commercial liability, workmen’s compensation, zoning coverage, environmental liability, legal expenses, and other risks. Results. The premiums for the 15 separate polices were determined by applying usual and customary actuarial and insurance industry underwriting principles that provided a rational basis for calculating the premiums with respect to the benefits that would be insured. The total premium paid for the 15 policy users totaled approximately $1,100,000. Results. The State of Nevada Insurance Commissioner approved the formation of a parent-child pure captive and issued the necessary licenses to form a captive insurance company taxed under Section 831(b). John, Ted and Bill realized a combination of significant tax and non-tax benefits in Exhibit A attached, which shows the tax benefits of using a captive versus not using a captive. Those benefits include:- The premiums paid by Apartment Company and each of the LLC’s to John, Ted, and Bill’s captive are fully deductible for income tax purposes. The captive is not taxed on premium income, and the investment income is taxed as a result of Section 831(b). Any eventual distributions by the captive to its shareholders qualify as dividends and are currently taxed at a 20% tax rate, and are not subject to the Net Investment Income surcharge.
- The captive and its assets are not subject to the claims of Apartment Company’s creditors or to any creditor of each separate LLC or to claims of John, Ted, or Bill’s personal creditors for asset protection purposes.
EXHIBIT A CAPTIVE TAX BENEFITS OVER 10 YEARS
(Based on Preclaims) | Year 1 | Year 5 | Year 10 |
No Captive | |||
Net Business Income | $ 1,100,000 | $ 5,500,000 | $11,000,000 |
Income Taxes (50%) | (550,000) | (2,750,000) | (5,500,000) |
After-Tax Investment Income* | 13,200 | 64,818 | 128,791 |
Total | $ 563,200 | $ 2,814,818 | $ 5,628,791 |
With Captive | |||
Captive Premiums | $ 1,100,000 | $ 5,500,000 | $11,000,000 |
Operating Expenses | (65,000) | (325,000) | (650,000) |
After-Tax Investment Income* | 24,840 | 121,975 | 242,362 |
Total | $ 1,059,840 | $5,296,975 | $10,592,362 |
After Tax Net Gain With Captive | $ 496,640 | $2,484,157 | $ 4,963,571 |
Assumes a 3% gross rate of return on investments |
Exhibit A Captive Tax Benefits Over 10 Years
(Based on Preclaims) | Year 1 | Year 5 | Year 10 |
No Captive | |||
Net Business Income | $ 1,100,000 | $ 5,500,000 | $11,000,000 |
Income Taxes (50%) | (550,000) | (2,750,000) | (5,500,000) |
After-Tax Investment Income* | 13,200 | 64,818 | 128,791 |
Total | $ 563,200 | $ 2,814,818 | $ 5,628,791 |
With Captive | |||
Captive Premiums | $ 1,100,000 | $ 5,500,000 | $11,000,000 |
Operating Expenses | (65,000) | (325,000) | (650,000) |
After-Tax Investment Income* | 24,840 | 121,975 | 242,362 |
Total | $ 1,059,840 | $5,296,975 | $10,592,362 |
After Tax Net Gain With Captive | $ 496,640 | $2,484,157 | $ 4,963,571 |
Assumes a 3% gross rate of return on investments |
Captive Insurance/Risk Retention
What To Consider When Establishing and Operating a Captive Insurance Company The use of alternative risk transfer vehicles, which includes captive insurance companies, has become an important part of the risk management strategy rather than an innovation for larger organizations, following the hard co mmercial insurance market cycle of the late 1990s. These vehicles represent roughly half...
Commercial Transactional Law
Getting top legal counsel for your business is simple when you contact the Nevantage Law Group, in Reno, Nevada. Their lawyers are on top of all business and contract law developments that are advantageous to your business operations because they helped draft many Nevada business laws. Read More
Tax Reducation Planning
To grow and succeed in your business, you need to take every advantage you can. Depending on where you do business, you may face significantly more challenges than others – especially if you are located in a high-tax state such as Oregon, New Jersey, New York or Illinois. The regulations and tax structures of these states can prove inhibitive for growth-oriented businesses. This is why the Nevantage Law Group works so hard for our clients – we know you just want to do business, and get paid for your efforts. With our Structural Mitigation Tax Planning, we can show you how to do just that. Read More