Broker Check

Episode 44: 831(b)/Captive Insurance Plans: Love & Scrutiny

In this episode of the Family Business Show, hosted by Michael Palumbos, the spotlight is on Van Carlson, who discusses the intricacies of 831(b) plans, also known as captive insurance plans. The conversation delves into the benefits and scrutiny surrounding these plans, offering a deep dive into how they work, their potential advantages for business owners, and the common pitfalls to avoid.

Van Carlson shares his journey from serving in the military to becoming an entrepreneur and eventually immersing himself in the world of risk management and insurance. He emphasizes the significance of 831(b) plans for businesses, especially in managing risks that are not covered by traditional insurance policies. These plans allow businesses to set aside pre-tax dollars to self-insure against specific risks, with the funds growing tax-deferred and accessible under certain conditions.

The discussion also touches on the legal and regulatory aspects of 831(b) plans, highlighting the importance of compliance and the potential consequences of misuse. Carlson illustrates how these plans can be a strategic tool for business continuity and financial planning, offering examples from various industries, including construction and healthcare.

Listeners gain insights into the operational mechanics of 831(b) plans, the role of risk management, and the long-term benefits of strategic financial planning. The episode emphasizes the need for businesses to understand and leverage these plans responsibly, aligning them with their broader financial and risk management strategies.

Episode 44 Transcript


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Michael Palumbos: Oh welcome everybody to the family business show I am Michael Columbus with family wealth and legacy in Rochester New York upstate.



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Michael Palumbos: I hope everybody's having a great you know week we are really excited to be talking about this episode we're joined by Van carlson.



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Michael Palumbos: And we're going to be talking 831 the plans captive insurance plans and the love and scrutiny that goes with them so we're going to get some pros and cons and.



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Michael Palumbos: Really excited about this conversation, because it is a topic that I have been asked about many, many times, especially with our construction owning companies so van welcome.



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Van Carlson: Yes, thank you for having me on i'm looking forward to you know we're educating out there on this code all the time, so i'm excited to be on your on your platform great.



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Michael Palumbos: So tell me about.



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Michael Palumbos: You know your journey I can't imagine that you know your whole life, you went to college to figure out how to do 831 V plans and captive.



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Van Carlson: But.



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Michael Palumbos: You know, we always find it interesting.



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Michael Palumbos: You know what were some of the.



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Michael Palumbos: In the in the three minute version of the twists and turns of van carlson's career to get to where you are today.



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Van Carlson: You know i'll try to make it three minutes real quick, so you know I did I went and did my four years of service.



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Van Carlson: And I got my GI bill, I came back and what's college, I said Oh, thank you that.



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Van Carlson: was a great four years and I wouldn't be where i'm at today if I didn't do that so.



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Van Carlson: You know, you know when people tell me thank you i'm like thank you because it was it was a great four years and learned a lot and I grew up fast right anyway.



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Van Carlson: You know, at that point, I was working for fedex I found myself going to middle management.



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Van Carlson: You know, selling my soul of corporate store and I was willing to do it, and then I got introduced into potentially owning my own business to a property casualty agency, and I said man if i'm gonna work 6070 hours for a company.



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Van Carlson: And do the blood, sweat and tears and learn to hate Christmas.



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Van Carlson: Because all managers do that work for any of those shipping companies.



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Van Carlson: You know, you know Do I really want to you know, and then I had to move and also stuff and I, and we, we live in Idaho and you know if you live in Idaho you have a certain mentality of.



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Van Carlson: Wanting to be on the outdoors all the time and and so yeah I just said, you know i'll get i'll believe in myself and take a shot and that's really where the property cassie.



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Van Carlson: I started off pretty successful i'd has been growing for the last 20 some odd years now, so i've been in risk management, and you know, like every small business as you grow you wear all the hats and, as you.



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Van Carlson: build out your team you're giving those Hats off and ended up just dealing with commercial clients, the small business owners mom and POPs.



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Van Carlson: Great people risk takers beyond belief good Community supporters know their employees inside out all that stuff right and because I was one of them as well.



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Van Carlson: Sure, and then oh eight came along, I was introduced to this idea about self insuring risk and how do you mitigate that risk more effectively by utilizing a very low tax code.



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Van Carlson: But I wasn't that interested and then, when oh eight happened, unfortunately, I saw a lot of those good people.



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Van Carlson: Maybe they weren't astute about all the business structures, they were involved in, but nevertheless, you know they found themselves going out of business and.



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Van Carlson: And you know affected my business to you know they stop paying their premiums as well, so.



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Van Carlson: You know I had you know, had to look at some different ways of doing business, and you know I looked at this, we know what a smart people do well for people take advantage of all the rules.



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Van Carlson: Out there in order to play the game, the game, the best they can, and that's when really when I became a strong believer in this program.



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Van Carlson: Recognizing the financial risk business owners take them, unfortunately, you know their financial risk is limited in scope, but may I call coming into the fourth year right or fourth quarter, excuse me.



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Van Carlson: You know, unfortunately, a lot of people think they got to go buy more stuff.



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Van Carlson: to accelerate depreciate the equipment.



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Van Carlson: And I used to love that when I was in property casualty insurance, because the fourth quarter came along, I got phone calls to write the.



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Van Carlson: Book there yeah hey what's a i'm gonna buy a cup more trucks and cut more skilled stairs what's it going to cost to ensure i'm like great i'm in you know.



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Van Carlson: The problem is, they financed it they didn't pay it off it didn't take the tax savings and put that down on the equipment right they just finance it, and when the craziness to that the here's the craziest part of that if you're having a good year.



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Van Carlson: you're just betting next year is going to be better because you just took on a lot more debt.



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Van Carlson: I mean it's the biggest trappings.



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Van Carlson: That, I think, small business and family run businesses have.



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Van Carlson: You know, and so that's.



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Van Carlson: that that was not appealing to me and and so that's where this program really takes over, and I think the reason why the code exists, I mean it's an 831 be tax code.



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Van Carlson: You know, we can dive into that a little bit Michael if you want i'm happy to do that it's really exciting but.



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Michael Palumbos: Why don't we just.



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Michael Palumbos: Why don't we give the.



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Michael Palumbos: The layman's version of what.



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Michael Palumbos: text irs tax code 831 vs yeah so.



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Van Carlson: I kind of started the company, you know there's two tax codes allow business owners just defer taxes in their business and their s corp llc or even in their C corpse and that's the 41 K.



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Van Carlson: And then 831 be for one case design for their personal retirement employees retirement a 31 be allows you to recognize self insuring risk and differ dollars into that self insuring risk.



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Van Carlson: It was passed in 1986 and a lot of people don't know about this tax code, but it's been utilized literally for decades now, by fortune 500 companies and significantly large companies and then you're years client my client.



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Van Carlson: So when it was first introduced though it was the farmers that were self insuring crop insurance.



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Van Carlson: And because what was happening is private sector was getting out of it right because it's became very volatile.



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Van Carlson: You know it's like the hurricane sector right insurance companies for profit for profit companies don't want to ensure those type of volatilities.



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Van Carlson: That he got out of it, and meanwhile farmers were stuck like how am I going to self insure now how am I am self insured crop insurance now today grant you.



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Van Carlson: When you hear farm subsidies it's almost all crop insurance related subsidies that go on out there in the country today that wasn't happened back in 1986.



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Van Carlson: And so Congress got together, you know tip o'neill Ronald Reagan I mean that was the year that those were the those were the.



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Van Carlson: I guess the decade, when there was actually compromise where people actually sat down with the civil war with each other that was my only little tidbit for the politics of the day, but civility has you know it'd be nice to be civil right but anyway.



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Van Carlson: So you know they came about both both you know the Senate, the Congress has burned by democrats, and we of course Republicans had the.



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Van Carlson: The White House, but you know those were great compromises I would tell you the tax reform act 1986 was by far the biggest tax reform act we had.



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Van Carlson: Certainly in my lifetime me this last go round is is miniscule compared to what happened in 86 but, nonetheless, let me jump in for just a second.



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Michael Palumbos: band, because you just said something I think is really important that I only know because my father was a financial advisor started in the mid 70s, so he went through all that stuff and so that tax reform act of 86 did some things to close a whole lot of loopholes in the real estate.



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Michael Palumbos: Market it made some investments almost worthless at that point, but what you're telling me is that that same time that's when.



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Michael Palumbos: The 31 be was introduced so here they're getting rid of, and this is an interesting point they're getting rid of tax loopholes, but they're creating tax code.



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Michael Palumbos: that's real and and.



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Michael Palumbos: helpful for some of the business owners out there.



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Van Carlson: We absolutely have even you look at self insuring risk right, if I have a risk it's.



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Van Carlson: Certain to my specifically to my industry my business and I can't transfer that risk through traditional means I can't buy a work COMP general liability or property coverage for this type of risk I can't transfer a while i'm self insuring that.



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Van Carlson: Well, I just took a good example would be warranty right or we call it non mercy ability warranty in order to do business today with a lot of retailers you got to honor their return policy.



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Van Carlson: Well, I would I don't it's not a defective product it's a fairly good product it's just there they're socially liberal return policy today.



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Van Carlson: That it's not target or costco eating that it's the distributor in the manufacturing feeding that a lot of consumers don't know that but.



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Van Carlson: You know so there's there's a lot of risk goes into the businesses, even when you do those two and your that's all self insured risk.



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Van Carlson: You know supply chain rick look at supply chain today right hugely strain yourself, ensuring that risk your self insuring your brand protection today.



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Van Carlson: You know if you if you know due to social media, it does it takes seconds, it takes years to build up to be a reputable company takes seconds to be destroyed, whether it's true or not.



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Van Carlson: You know, and you got to be able to defend that right so where's that money going to come from right So these are self insuring risk that business owners have today and that's just a few that we can you know i'm highlighting them.



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Van Carlson: But the reality is you know you can't just sit there and take $1 park it off to the side.



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Van Carlson: and say hey if something happens on these US dollars government says no that's so self insuring risk is not a deduction so that's why the coding became an existence.



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Van Carlson: You know, at that point is $1.2 million a year, the past act made some changes so they state tax guys that were out promoting that and that's really what happened.



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Van Carlson: You know, you know we call them the Google experts have clients went out where to Google 831 Bay today.



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Van Carlson: They would see a lot of a lot of heat on it truthfully and I would say that, but the problem with that is that he came from attorneys out there, promoting this program not as a risk mitigation tool, but more of an estate tax tool.



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Van Carlson: And that's really what brought the cases up because you know you look at oh nine these cases that were tried and the irs is, I think one last four cases under the 13 will be tax code.



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Van Carlson: Reversal we're not done for the purpose of risk risk mitigation, it was solely for the purpose of estate taxes, because you also gotta go back at that time.



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Van Carlson: And look at what the state taxes were at that point right, I think it was a million dollars or two I can't remember the it anyway, you know that I was a little guy young at that time, so you know I can't.



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Van Carlson: But, but you know I mean so there's other motivations going on and anytime you know, I think, with the irs my experience and, this being the observer of things.



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Van Carlson: Is you know, give me one so give me twice and, unfortunately, you know, and then, some of them in third time because they went and put life insurance inside of them and then they were out there, promoting tax free.



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Van Carlson: tax free income, and you know.



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Michael Palumbos: Let me pause you for a second.



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Michael Palumbos: Because I think it's I just want to make sure that nobody missed what we were just talking about there.



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Michael Palumbos: So tax code 831 be exists in the irs code, but just like anything else if you.



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Michael Palumbos: take it to the nth degree times 10 and hope that you're going to get you know all kinds of benefits from it and I, and you know, being a wealth advisor we don't sell life insurance, but we do help a lot of clients buy it because there's a need, sometimes it really.



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Michael Palumbos: It fits a proven agree.



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Van Carlson: More I could not could not agree more so.



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Michael Palumbos: But then, if you if you're trying to sit there and say my life insurance policy is going to.



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Michael Palumbos: handle you know my survivorship planning my estate planning my college planning and i'm going to get my retirement planning out of this one in life insurance policy ah, I got a funny feeling that you might be missing what the point of.



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Michael Palumbos: owning life insurance is well well Michael to add to.



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Van Carlson: they're using it to fund it with tax deferred dollars out of their 831 B plan.



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Van Carlson: right which is even which is.



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Van Carlson: I mean, I get why the irs is upset so.



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Michael Palumbos: What we're saying, let me give you just a because i'm skip that and what we're saying is.



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Michael Palumbos: You can take something really good and anybody can.



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Michael Palumbos: Make it bad if that's what they want to do.



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Michael Palumbos: And so, there are some there were some bad apples that you know when, after these 831 beat plans and said we're going to show you how to make.



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Michael Palumbos: tax free dollars use it for your state plan use it for everything possible and at the same time, though, it's making it tough for people that really have some of these risks in it and.



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Michael Palumbos: The rest.



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Michael Palumbos: mentioned like brand risk yeah.



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Michael Palumbos: Every one of my clients, you know if you're in the middle market you're doing between 10,000,200 million dollars, you do not have a fund.



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Michael Palumbos: Typically, that you're setting aside for brand you know management risk in and that's a real risk hunter bit, especially if i've been in business for 2550.



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Michael Palumbos: Years right yeah i'm with you so far and.



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Van Carlson: Then that made me think about it, I mean, unfortunately, think about last year, how many people I political risk.



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Van Carlson: How many people had business edge indirect business interruption to the problem right now is all these lawsuits are being come up with for the ensure.



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Van Carlson: The insured is suing the ensure for business interruption but there's a there's a specific definitions in the policies about indirect and direct losses.



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Van Carlson: direct losses are my building caught on fire, I can't work in there anymore that triggers business interruption under the underlying coverages of the policies.



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Van Carlson: But the fact is, is the dental office was perfectly fine it was just forced to shut down by the county or state governments yeah, no, no.



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Van Carlson: insurance for that.



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Michael Palumbos: And that's exactly the kind of thing that you're talking about a supply chain.



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Van Carlson: pandemic insurance.



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Michael Palumbos: You know the things that you know, and you know.



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Van Carlson: And you know, quite honestly, the other one is going to be dispute resolution I think what we're seeing already with our clients.



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Van Carlson: I think the lawsuits that are going to be coming in the future over these situations.



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Van Carlson: is going to jam up court case I mean the court cases already jammed up right but it's going to get a lot worse, unfortunately, I mean there is so much things that got to get worked out, because this is unprecedented in our in our.



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Van Carlson: Certainly in our lifetime and maybe even to the extent of of the impact it has on the economy and people individually and.



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Van Carlson: And so it's going to be really interesting, but nevertheless I mean you know I love risk, I mean, I will say that I get people like what.



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Van Carlson: But I you know I could I could pretty much talk anybody I have anything just tell, I can tell you, everything that could go wrong trust me, I mean you start to develop that and it's I don't know if it's a sickness or not.



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Van Carlson: it's something one of those things where you know I I always want to be the guy with you know you know glass half full, of course, but you know.



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Van Carlson: You know, there are some there are there's a lot of risk and unfortunately it's not getting the world getting more complicated all the time and and here's the thing about traditional insurance carriers.



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Van Carlson: They do a really good job they've done very well financially they're not in a hurry big hurry take on more risk anytime soon, especially after this ordeal.



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Van Carlson: So I think for the for the long this tax codes, going to be around for a long time it's going to become we tell our clients and we tell anywhere I speak.



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Van Carlson: These platforms are in front of audiences that this will become a normal business practice no different than the 401k I mean going back you know the 401k model so so and i'll kind of explain what it was what we do as a company to real quick but.



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Van Carlson: So, really, you know when you look at the 401k was very, very expensive to do in the beginning, right, I mean it was only for big employers.



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Van Carlson: And all that kind of now we've got it down to fees have been beat down we've got good case Presidents, we know theorists and rules are going to be and it's a regulated form of business and it's assumed.



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Van Carlson: That every business owner you wouldn't offer for one K to your employees, if you couldn't do it if you couldn't take the deduction you wouldn't do it right so.



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Van Carlson: that's a tax incentive, you know for to provide a retirement plan and then you get a 31 being.



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Van Carlson: What we are what we are as a company, because we certainly aren't here to complicate business owners lives were an admin under the 31 be tax code no different than if I engage the 401k admin.



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Van Carlson: You have to have an administrator you got to know the rules, you got to know that the rules of engagement, how do you comply with the tax codes what's fair and reasonable.



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Van Carlson: All of those things you have to have an administrator and administrator and that's really where that's where we fit in as a rule role rule with our clients.



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Van Carlson: clients real quick.



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Michael Palumbos: Where we were they would understand this on the 401k they have you know their their financial advisor helping them pick investments and hopefully helping them with their fiduciary responsibilities.



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Michael Palumbos: You have the third party administrator who you know takes care of all the dotting the i's and crossing the t's making sure the.



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Michael Palumbos: irs form 5500 is done in that you've had all your regulation.



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Michael Palumbos: And then the record keeper just keeps all the pieces together.



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Michael Palumbos: So you're acting as the third party administrator to administer that plan is that.



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Van Carlson: How I get that no that's exactly right, you know there's a four part test elect under the 31 be.



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Van Carlson: You know, real quick it's a transfer risk it's the risk distribution it's it's ensuring fortuitous type risk.



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Van Carlson: And then acting in principles of insurance, because one of the things that this thing needs to look and feel like you know if you took an 831 B and you say okay I got to have a box what's that boxing and look like.



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Van Carlson: Well, it needs to look like an insurance company because that's really what it's going to be that's what it's going to be operating as right.



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Van Carlson: So we create the box, we make sure our clients at here to the four part plan we give them regulations we we tell them there's going to be minimum contribution you know Max contributions and potentially.



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Van Carlson: force force distributions now the nice thing is that box is a is an insurance company that's also a C corp.



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Van Carlson: So you know the nice thing about a client situation, unlike a 401k you know informal case deferring taxable income in the future, the day 31 the plan allows you to take long term capital gains or dividends out the can infuse when you shut it down or you want to take a distribution.



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Van Carlson: So there's some advantages there under the tax code for now, you know we don't know in the future, whether that's going to be a winner or loser for the client, so I hope they do, but it's about different taxes.



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Van Carlson: That you can fight the fight better you're not relying on the PPP you know you know because barna because catastrophic event.



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Van Carlson: You know you can't expect the government to step in like they did last year, and maybe they maybe maybe never again I don't know who knows.



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Van Carlson: But the point is is when you're when you're deferring you know if you're going to go fight a fight you're going to have to go.



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Van Carlson: build supply chain risk dispute resolution I could talk to you about employer liabilities, I can talk to you about.



00:19:20.100 --> 00:19:29.310

Van Carlson: The brand damage who kind of hit on so far, but even cyber today cyber that you know they're so they're so limited in scope of the traditional policies that people are buying today.



00:19:30.240 --> 00:19:37.020

Van Carlson: Trust me the supplements on those policies can be devastating to your business, if there are you know and you're only gonna be able, by so much insurance.



00:19:37.500 --> 00:19:46.830

Van Carlson: Right, you know you know so again, these are just a risk risk is never an issue when it comes small business and middle market business owners, but you know truth be told that.



00:19:47.700 --> 00:19:58.500

Van Carlson: You know, we help with that as well, I mean that's that's what we do right we're risk mitigated will hire the attorneys will hire the CPA will do all those things, but far as my office goes and my team.



00:19:59.070 --> 00:20:10.050

Van Carlson: we're risk mitigation we're our background is being a risk management, not not the tax code I just said, we know the tax, so we have to write no different than a 401k administrator needs to but.



00:20:10.470 --> 00:20:19.200

Van Carlson: We don't give tax advice we give risk minutes, how do you manage your risk more effectively in your business, and you know I know a lot of your clients or construction folks and.



00:20:19.770 --> 00:20:26.280

Van Carlson: And you know I see right now, construction, being a huge risk up there, I think, supply chain risk is huge, right now, unfortunately.



00:20:26.610 --> 00:20:32.190

Van Carlson: You know I can't do anything about pricing, you know, think of a future right you can't by putting our call on a future because.



00:20:32.550 --> 00:20:42.210

Van Carlson: You can't lock in a price on a on a on a piece of a two by four, but you can certainly manage the supply chain risk of that you know if all of a sudden, I can't get my wood.



00:20:42.960 --> 00:20:52.080

Van Carlson: And I got to get a project done and I got it now divert to another supplier and now i'm paying 20% more because of that well that has nothing to do with.



00:20:52.710 --> 00:21:01.800

Van Carlson: Supply and demand of would necessarily just simply expected supply the supply is drying up now where's that additional money going to come in, if I just walked into a contract.



00:21:02.550 --> 00:21:08.970

Van Carlson: You know now my profits are going to get eight down now how much more risk now i'm taking a lot more risk on that so supply chains one.



00:21:09.660 --> 00:21:22.110

Van Carlson: And then construction defect is huge, today, you know these products that are being made today that are showing up and then to a lot of legislations be testing states where a lot of these general contractors got Ahold of 10 years construction defect.



00:21:23.550 --> 00:21:33.060

Van Carlson: And that's that's problematic as self insuring risk potentially the other one, I would say that we see in construction specifically is subcontractor default.



00:21:34.350 --> 00:21:45.750

Van Carlson: Were on me, I was the general I hired that subcontractor to come any kind of subcontracting work you do you if you hired somebody else out for ultimately responsible for their work.



00:21:46.140 --> 00:21:47.070

Michael Palumbos: Right, the button you're on.



00:21:48.300 --> 00:21:52.890

Van Carlson: yeah exactly they're out of business or they're out of town or they don't return your calls.



00:21:53.550 --> 00:22:01.050

Van Carlson: And now there's a warranty going on, or you know, five years later, they installed the flashing wrong on the roof you're on the hook for that.



00:22:01.560 --> 00:22:08.580

Van Carlson: You know, and so that those are those are risks that you know and here's the biggest thing like I always talked about when I talked to business owners.



00:22:08.940 --> 00:22:18.570

Van Carlson: you're having a good year just to take a little bit off the top and park it off to the side is just good risk mitigation but it's also really good business.



00:22:19.290 --> 00:22:25.680

Van Carlson: And that's and that's really, what I want to tell all these risk owners these business owners these risk takers your clients my clients.



00:22:26.280 --> 00:22:38.220

Van Carlson: That hey we want you, we want you to go on your the lifeblood of our country we get I mean absolutely but the recognized risk you take, and the bill park a little bit off to the side.



00:22:39.600 --> 00:22:44.580

Van Carlson: I can tell you this clients that have been with us for a long period of time and i've been doing this, since 2008.



00:22:45.330 --> 00:22:51.840

Van Carlson: Great time to start a business, by the way, but you know we survived and and we you know it was good, actually, you know it's good.



00:22:52.200 --> 00:22:59.760

Van Carlson: You know it's probably a good time to start a business and when when times are tough right, you can make it, you can make a lot of money there times are good, I guess, but anyway.



00:23:00.900 --> 00:23:04.740

Van Carlson: You know, going back to all that you know we were sitting there and and.



00:23:06.450 --> 00:23:12.960

Van Carlson: You know, working with all these different business owners and over the years and the best compliment we get from them is like a.



00:23:13.530 --> 00:23:21.810

Van Carlson: van we just sleep easier at night, knowing we've we've been in your program for a number of years, last year, when Kobe first started claim started coming through.



00:23:22.350 --> 00:23:30.390

Van Carlson: And we had we had a 1300 percent increase in claims last year due to code that you know we paid out faster than the government did on the PPP.



00:23:30.810 --> 00:23:40.080

Van Carlson: You know, again as administrator we're making sure the money's flowing correctly that you're putting you know if there's a claim going on there's a process for that all these things that we do in the background.



00:23:41.580 --> 00:23:47.220

Van Carlson: But you know I i'm very candid with it i'm very passionate about that you know.



00:23:47.700 --> 00:23:59.250

Van Carlson: You guys take a lot of risks and if you can mitigate that a little bit I just think it's good business and and not only do you owe it to your your family your legacy, but you want to the employees that work for you.



00:23:59.970 --> 00:24:09.150

Van Carlson: Right, you know if I can, if I know all the rules and I played the game well you'll win bet you know i'll be things being equal, between competitors.



00:24:09.660 --> 00:24:19.050

Van Carlson: If you knew the rules better you're going to win right it's the talent was equal right so always talked about that with business owners, all the time it's like and, by the way, this is just a tool right.



00:24:19.560 --> 00:24:21.210

Van Carlson: For the right client for great tool.



00:24:22.290 --> 00:24:23.370

Van Carlson: that's it, you know.



00:24:24.390 --> 00:24:25.890

Michael Palumbos: that's great stuff I just want to keep.



00:24:25.950 --> 00:24:29.250

Michael Palumbos: You know because I watch our time to make sure that we get.



00:24:29.370 --> 00:24:31.710

Michael Palumbos: Everything in so I just want to you know.



00:24:32.280 --> 00:24:45.480

Michael Palumbos: We talked about what an 831 B is that makes really good sense we we talked about the fact that there are some you know what I would call the bad apples out there that are leveraging you know every single line in that.



00:24:45.480 --> 00:24:46.500

Michael Palumbos: code and.



00:24:46.650 --> 00:24:47.580

Michael Palumbos: A lot of times.



00:24:47.610 --> 00:24:54.690

Michael Palumbos: Based on what you're saying they're doing it improperly they're doing it for the tax reasons, not for the benefits of the captive itself.



00:24:55.230 --> 00:24:57.090

Van Carlson: And, and at the end of the day.



00:24:57.360 --> 00:25:04.320

Michael Palumbos: You know if you're if you were to do if you were to leverage a 401k for all the wrong reasons guess what.



00:25:04.530 --> 00:25:11.040

Michael Palumbos: The irs is not going to be happy about that and it's just that, because there's a lot more 401k programs out there.



00:25:11.280 --> 00:25:23.640

Michael Palumbos: i'm guessing that that's why it's so easily codifying and people know what they're supposed to be doing that does not take the complication out a 401k we happen to be 401k specialists in my office.



00:25:24.000 --> 00:25:37.530

Michael Palumbos: And and i'm always you know, every time i'm introduced to somebody how often they're out of compliance because they don't know the code because they're in another industry they're in construction they're not in the 401k business it's just happened to that benefit.



00:25:37.950 --> 00:25:38.460

Van Carlson: To give.



00:25:38.790 --> 00:25:43.500

Michael Palumbos: And so I think you know this is sounding to me, for the first time i'm going to want to say thank you.



00:25:44.190 --> 00:25:48.630

Michael Palumbos: Because i'm starting to understand a little bit more around this 831 be then.



00:25:49.050 --> 00:26:00.090

Michael Palumbos: Again, we talked about that you know those bad apples the iron that caused the irs to send out a soft warning letter to you know the two people that were running an 831 captive.



00:26:00.480 --> 00:26:08.370

Michael Palumbos: Give me some of the hit points, what are they looking for you and you mentioned, do you have life insurance inside the plan, what are the other things that you know would.



00:26:09.270 --> 00:26:12.030

Michael Palumbos: help you to know the bad apples yeah I wrote.



00:26:12.060 --> 00:26:14.220

Van Carlson: I wrote an article for forbes actually.



00:26:15.390 --> 00:26:21.660

Van Carlson: outline the five bad principles of cactus and that's really has to do with you know in proper risk.



00:26:22.770 --> 00:26:24.540

Van Carlson: No, no, pooling of risk.



00:26:26.010 --> 00:26:37.590

Van Carlson: You know, really not following the four part test ensuring implausible coverages you know Those are the things are looking for you know there's some downstream issues, I think that we do a pretty good job with as well.



00:26:38.670 --> 00:26:40.290

Van Carlson: And you know, I would just say that.



00:26:41.310 --> 00:26:46.770

Van Carlson: You know, and I make it very you know I tell clients all the time because, believe me, we get a lot of clients coming from us from other.



00:26:47.400 --> 00:26:55.890

Van Carlson: administrators and one of the tests that one of the rules we have is okay you've been doing this for eight years, how many claims, you know, on tour, unfortunately, when he talked about.



00:26:57.210 --> 00:27:05.520

Van Carlson: distribution of risk, you can own 100% of your own race car yourself an insurance company under the box, under the Rules, you have to have some risk it's an affiliate to you because.



00:27:05.880 --> 00:27:14.250

Van Carlson: One of the things that are one of the things that insurance companies do is learn how do you leverage the law of large numbers, you know so we'll create co op pools.



00:27:14.910 --> 00:27:21.510

Van Carlson: That you're going to short share a little bit of risk of other people's you know, under the brand damage, so you have the potential to pay other people's claims.



00:27:21.900 --> 00:27:27.720

Van Carlson: But we manage that, through the law of large numbers, you know we have three 400 clients in a pool.



00:27:28.380 --> 00:27:32.940

Van Carlson: You know we're able to manage that much more effectively than there was one person in the pool right.



00:27:33.330 --> 00:27:38.040

Van Carlson: So that's another big one that's really where they got caught, a lot of them are they just weren't distributing risk oh.



00:27:38.280 --> 00:27:51.690

Van Carlson: Well, the questions we asked our clients or clients that are already been doing this program for a while, is Have you had other claims that were not your own, and if they tell us know well, then that's probably a problem that's that's a little bit of a.



00:27:53.880 --> 00:27:56.040

Van Carlson: Potential red herring that.



00:27:56.670 --> 00:28:03.750

Van Carlson: Where you properly pulled To begin with, because, last year I would tell you all of our client side claims, whether they had their own claim or not, because.



00:28:04.170 --> 00:28:14.610

Van Carlson: Everybody there was so many claims last year, but we made is that that is a calculated risk business owners take to do an 831 be you have to have distribution of risk and if you don't have it.



00:28:16.110 --> 00:28:23.190

Van Carlson: The course of sound that you're not an insurance company well if you're not operating as informative insurance company, then you can elect under the 31 be.



00:28:23.670 --> 00:28:32.400

Van Carlson: And that's really how they were able to capture everybody and and truthfully That was the warning letter that was sent out, you know we've been doing this for 12 years.



00:28:33.630 --> 00:28:45.060

Van Carlson: You know we've had no issues with the irs the tax code is going to be here for a very long time it's not going anywhere anytime soon, especially after last year, and unfortunately it continues throughout this year.



00:28:46.440 --> 00:28:52.290

Van Carlson: And so that all being said again there's to your point like there's right ways and wrong ways of doing things and.



00:28:52.620 --> 00:29:02.490

Van Carlson: it's always been something in our history is our country that will have people you know they'll take the line and they're going to constantly try to be moving it and for alternative motives and.



00:29:02.850 --> 00:29:07.200

Van Carlson: You know this thing as good as it gets deferring to deserve different income and in business.



00:29:07.830 --> 00:29:14.070

Van Carlson: To be able to fight the fight in a more efficient way because here's the thing you're going to get two to four times more in that dollar.



00:29:14.580 --> 00:29:20.220

Van Carlson: Then, if you just returned to us after tax dollars and and I can't tell you how many business owners i've sat with and said.



00:29:20.580 --> 00:29:27.210

Van Carlson: Okay, what are you doing with this, what are you doing about this as well we take that risk, and you know, but you recognize that as income, so if you make $1.



00:29:27.630 --> 00:29:36.600

Van Carlson: of profit and you going to take that dollar instead of this side, then you're down to about 50 to 66 depending on your tax bracket and your pastors and your steak you know all that.



00:29:37.110 --> 00:29:54.240

Van Carlson: When you you'd be better off to take $1 to fork to to to $2 versus 50 cents or less to go fight to fight, you know so those are things that that's that's really where the efficiencies of the business happens, and I think, just like you tonight you know.



00:29:55.260 --> 00:30:05.340

Van Carlson: It education knowledge is power and again for for business owners that you know lose sleep at night truthfully over these types of issues.



00:30:05.790 --> 00:30:21.330

Van Carlson: This can help with this program can help relieve that and, as you know, and you know when I was back and running my property casualty agency, you know I clients became friends, and you know they you know they said old times van your great guy you're good guy but every time I see you.



00:30:22.530 --> 00:30:23.370

Van Carlson: You cost me money.



00:30:24.840 --> 00:30:34.350

Van Carlson: And it's you know it's this property casualty insurance right, but you know with this program you know we're making our clients who easier at night, and you elevate your professionalism with your business owners.



00:30:35.910 --> 00:30:43.890

Van Carlson: And, and again get it again just getting the word out on platforms, such as yours and getting and letting people know that this is out there available to them.



00:30:44.370 --> 00:30:54.180

Van Carlson: we're very conscious of fees, we don't want fees to ever kill a deal we believe every small middle market business owner own will own some kind of form of an 831 the plan.



00:30:55.290 --> 00:31:01.110

Van Carlson: And it will become a normal business practice I think self insuring risk is going nowhere but up from here, unfortunately.



00:31:01.830 --> 00:31:03.690

Michael Palumbos: yeah no that makes an awful lot of sense so.



00:31:04.320 --> 00:31:10.230

Michael Palumbos: What let's go through again, you know and we captured some of the different types of risk that people would.



00:31:10.320 --> 00:31:10.950

Van Carlson: know that would.



00:31:11.460 --> 00:31:17.790

Michael Palumbos: But maybe we can break them out into some of the different industry, so if you know you talked about the ones in in construction.



00:31:18.120 --> 00:31:27.810

Michael Palumbos: You know where it was project risk and some of the other ones, but maybe inside of manufacturer or maybe inside a professional services, maybe, if you just kind of go through, so that the audience can kind of get an idea and said.



00:31:28.020 --> 00:31:28.380

Van Carlson: Oh.



00:31:28.440 --> 00:31:30.720

Michael Palumbos: That makes sense yeah yeah so.



00:31:30.780 --> 00:31:39.690

Van Carlson: So what you know, at one time is we all the client what what what tell us what you know and it's been you know, unfortunately, last year we had a lot of new ideas come to us.



00:31:39.780 --> 00:31:46.320

Van Carlson: Because we didn't you know because of Kobe right because we're like oh man, you know, we should add coverage for that week, so we do a lot of.



00:31:46.920 --> 00:31:52.530

Van Carlson: We do a lot of spending on the industry's right we do with a lot of medical community dental communities where we're looking at.



00:31:52.950 --> 00:32:05.970

Van Carlson: deductible reimbursements where today, unfortunately, you know to offset some of your costs and traditional churches you're taking on more risk, we have a we have a specific program where you can do a 31 B.



00:32:06.840 --> 00:32:14.250

Van Carlson: And it's called I read and I reprogram, but you can take over your traditional insurance as well, and you pick and choose the deductible level you want.



00:32:15.090 --> 00:32:19.740

Van Carlson: And that deductible difference i'm saving to the premium were able to talk into an 831 B.



00:32:20.130 --> 00:32:24.600

Van Carlson: And now we're able to build those reserves up so you if you're going to take on more risk for higher deductibles.



00:32:24.960 --> 00:32:29.100

Van Carlson: You don't have to worry about current cash flow to make good on those unexpected claims that come up.



00:32:29.460 --> 00:32:43.110

Van Carlson: But its profits from the previous years and so that's a really efficient program which you know we just did a webinar on that and and that's a good thing that it's very happy to have that come to the market it's a Lloyds of London product and.



00:32:44.280 --> 00:32:52.170

Van Carlson: I think it's going to change a lot of course you're still looking at about 150,000 to $250,000 in traditional premiums and all lines.



00:32:53.280 --> 00:33:02.250

Van Carlson: But for the right business owner again it's a great solution for them so, but the overall, I would say is the intangible assets of the business.



00:33:03.090 --> 00:33:09.510

Van Carlson: You know, like, I was saying, early traditional church companies do a very good job, ensuring the tangible assets, the buildings, the autos.



00:33:09.930 --> 00:33:17.070

Van Carlson: Things that people have to get a loan on or they can touch and feel right they do I believe traditional turns to do a very good job of that.



00:33:17.850 --> 00:33:26.340

Van Carlson: But when you look at the intangible assets of the business is where most business owners really put the value on the business, you know the blue sky right.



00:33:26.850 --> 00:33:35.520

Van Carlson: You know and that's really that's really where they fall down and and again it's very hard to quantify, how do you determine the losses, I mean all sorts of stuff so gets back to brand damage.



00:33:36.630 --> 00:33:42.060

Van Carlson: Intellectual properties contracts, all of these things you know your your your.



00:33:43.230 --> 00:33:53.070

Van Carlson: reputation in the Community, and then it goes into your supply chain, the contracts, you have with suppliers your your content all the things that bring the value.



00:33:53.610 --> 00:33:59.430

Van Carlson: to your business and the intangible you know when I make a presentation, the business owners and you know.



00:33:59.910 --> 00:34:08.790

Van Carlson: I asked the question, what do you value most the intangible the tangible assets your business and nine times out of 10 you know business owners are going to tell us it's the intangible.



00:34:09.510 --> 00:34:12.660

Van Carlson: But what are you ensuring for the tangible or intangible.



00:34:13.530 --> 00:34:19.470

Van Carlson: And so you know we you know I don't want to get specifically in a certain risk for any industry, but just know that.



00:34:19.770 --> 00:34:27.480

Van Carlson: Unfortunately, a lot of industries across the spectrum and, believe me, you know the nice thing about this business is finding out how people make money in this country.



00:34:27.930 --> 00:34:38.100

Van Carlson: And man I tell you we get music businesses out there that do very well and you're like who would have known right right, one of the great things about our business but i'm sure you see that too and.



00:34:39.270 --> 00:34:44.370

Van Carlson: So, you know that might be specifically to that business right, and then you don't talk about you know.



00:34:44.820 --> 00:34:52.650

Van Carlson: The big one, we see right now is recall recall is happening more and more too, and so, so I can go on and on about that, but I just want to make sure the clients understand.



00:34:53.070 --> 00:34:57.390

Van Carlson: You know your listeners and it's the it's the intangible assets of the business, we want to identify.



00:34:58.230 --> 00:35:12.360

Van Carlson: And our recovery net are not through traditional means and if we're not then what are we going to do differently about it and that's really where we can dive into that risk profile to those specific businesses or industries and go that route.



00:35:12.990 --> 00:35:15.630

Michael Palumbos: So when you're looking at your typical client.



00:35:15.690 --> 00:35:29.010

Michael Palumbos: let's go through, and say you know who is the right fit client for this it's not about industry, but you know, I have to believe that if i'm you know, maybe there's probably some revenue numbers or costs or whatever.



00:35:29.430 --> 00:35:29.700

Van Carlson: That.



00:35:30.000 --> 00:35:31.890

Michael Palumbos: So let's paint that picture for somebody so.



00:35:32.520 --> 00:35:34.050

Michael Palumbos: Oh yeah that's me or anything above.



00:35:34.050 --> 00:35:42.480

Van Carlson: That yeah, so I would say, you know we deal with clients from all sorts of spectrums when it comes to gross revenue your gross revenue of your business drive.



00:35:43.110 --> 00:35:50.940

Van Carlson: The ability to put more premium or less premium to the program it's no different than when I go to its original insurances and they want to know what was your gross revenue for the year.



00:35:51.570 --> 00:35:57.900

Van Carlson: The higher the higher gross revenue your businesses, the more you can expect to pay a premium right that's the correlation there right.



00:35:58.500 --> 00:36:05.460

Van Carlson: So you know but but, that being said, you know we have dentist that will only do 30 or $40,000 a year in the program and we have.



00:36:05.910 --> 00:36:11.430

Van Carlson: Other practices that will do $2 million a year, you know the most you can do in this program is 2.3 million.



00:36:12.030 --> 00:36:21.390

Van Carlson: A year into the insurance come into the box into the 31 B plan on an annual basis and and still be able to elect them or they 31 being now again.



00:36:21.840 --> 00:36:27.780

Van Carlson: There has to be some actuarial put in place, there has to be some rules put in you can't just say hey i'm gonna put 2.3 million that doesn't work that way.



00:36:28.320 --> 00:36:32.790

Van Carlson: Right there's rules and regulations that again we have the administrator make sure you have here too, so.



00:36:33.930 --> 00:36:41.880

Van Carlson: But so we get it from all games, but I would you say, on average, on average, you know if you can, if you know you're doing more than a million dollars in gross revenues.



00:36:42.990 --> 00:36:48.180

Van Carlson: And you know I would say, minimum you want to do at least $80,000 a year into the Program.



00:36:49.530 --> 00:36:57.030

Van Carlson: You know that makes it work, you know the nice thing is, we have some fixed expenses, if one year, you know you can't afford to do anything.



00:36:58.290 --> 00:37:05.670

Van Carlson: You know it's not going to kill you, the only things that's another thing in our program when we designed our program we want it to be such a compliment or business owners.



00:37:06.090 --> 00:37:10.770

Van Carlson: That they weren't going to get a road at any advantages that they would have had over the years due to fees.



00:37:11.220 --> 00:37:18.810

Van Carlson: And so you know we're very proud of that, I think our record shows that you know, based on our growth amount of clients, we have over the country.



00:37:19.320 --> 00:37:30.720

Van Carlson: That you know we are the low cost provider was five star service and and you know that's that's what we try to implement every day and and I think our success shows that.



00:37:31.440 --> 00:37:32.670

Michael Palumbos: Great so.



00:37:33.120 --> 00:37:34.860

Michael Palumbos: So that that helps me i'm that.



00:37:34.950 --> 00:37:46.620

Michael Palumbos: arena like we talked about, I think you said you're you're creating a C corp does each individual create their own C corp or is it just your they become part of the one.



00:37:47.520 --> 00:37:54.330

Van Carlson: yeah yeah so each client will have their own seek or Where are those being registered.



00:37:55.110 --> 00:38:01.560

Van Carlson: Well that's The interesting thing that we do we do them domestically, but we do them on a federally recognized Indian tribe in Oklahoma.



00:38:02.160 --> 00:38:12.810

Van Carlson: And that gives us the ability to be a domestic company so we're not subject to offshore issues is still files that federal tax return you get an ei n number from the state of Oklahoma.



00:38:13.650 --> 00:38:15.510

Van Carlson: And it does, and you have to have a tax return on it.



00:38:16.110 --> 00:38:22.710

Van Carlson: And we as administrator provide all that and we also provide the third party CPA firm that will, Minister, the tax return.



00:38:22.980 --> 00:38:27.570

Van Carlson: We don't expect our clients CPA down the road to do these tax returns for this tax code so.



00:38:27.900 --> 00:38:35.160

Van Carlson: So we try to put it all in one box for one client so again we're not here to complicate business owners, I think they already have enough challenges or at night.



00:38:35.550 --> 00:38:45.390

Van Carlson: we're just going to try to be a compliment to them and that's and that's really the educational process of that you know the nice thing with the tribe that we work with we're doing a lot of good for that tribe there you know.



00:38:46.020 --> 00:38:54.150

Van Carlson: You know, when I first started this it was eight states, promoting you to own your insurance your this 831 B plan within within the state of utah.



00:38:55.500 --> 00:39:06.990

Van Carlson: And Delaware was well known for it and, and I think Nevada was doing it Montana was doing a little bit there's now 34 states, promoting your own eight they're going to be plans and their states.



00:39:07.590 --> 00:39:23.760

Van Carlson: And, of course, the big guys go off shore, they have no problem, going from you or came in, but you know typically our clients are little reserved in that they don't you know when they hear offshore they you know that's that's where the you know that's for the the big tech company gas.



00:39:23.970 --> 00:39:37.290

Van Carlson: Gas but because a lot of big companies own a lot of these insurance companies all over the world, I mean, I can tell you, Microsoft owns about 20 different insurance companies, so you know, nobody telling them product liability, so they have to self insure risk right but aside of all that.



00:39:38.310 --> 00:39:49.230

Van Carlson: You know we're helping to try out immensely with programs are starting, for you know scholarships for their for their for their members of their of their tried, all the way down to.



00:39:50.520 --> 00:40:02.370

Van Carlson: school systems and daycare assistance, I mean the revenue is being generated on these tribes on the tribe that we work with is doing it no different than the wise States want to they want the premium taxes and they want the revenues for the domicile fees.



00:40:04.380 --> 00:40:15.060

Van Carlson: And so I really I get i'm very passionate about that as well, where you know it's important where your insurance company is going to be held at 831 be planets can be held at.



00:40:15.510 --> 00:40:24.540

Van Carlson: And what better place than a federally recognized tribes that's trying to better their members and and you know, maybe don't own the bay casinos and do all these other things, and so.



00:40:25.740 --> 00:40:33.510

Van Carlson: it's a big advantage to our business owners so walk me through it again just because I think it's helpful for people to understand what.



00:40:34.230 --> 00:40:38.370

Michael Palumbos: We talked about and that's what you know, one of the things that i've heard many times.



00:40:38.670 --> 00:40:49.980

Michael Palumbos: Is that you know they're developing their C corporations are doing, you know i'll sure, and that you know when as soon as you say, offshore to me I start to say okay what's going on.



00:40:50.670 --> 00:40:51.420

Michael Palumbos: Why.



00:40:51.480 --> 00:41:06.090

Michael Palumbos: Why are they doing that one, and so, and then you keep them in you know, in the US domestically done through you know i'm the Indian reservation, what are the what's the benefit there in what part of the code, you know makes that work or don't not work well.



00:41:06.210 --> 00:41:19.590

Van Carlson: If you know the Code, the code really doesn't recognize themselves at all the domiciled never been an issue as long as there's regulations put in place, and these regulations were adopted under the the utah regulations by the tribe.



00:41:20.880 --> 00:41:26.250

Van Carlson: But the reason why they would have gone off sure it's really get around state regulations you know, unfortunately state.



00:41:28.680 --> 00:41:39.870

Van Carlson: yeah everybody's looking for revenue, you know and it gets me very expensive you're dealing with bureaucracies that can become pretty encompassing to do business with.



00:41:40.500 --> 00:41:52.020

Van Carlson: You know you have to show every regulation of of what coverages you want to put in your captive you have to have capitalizations you have to have pre paid premium taxes, so you start to get regulations put in place.



00:41:52.770 --> 00:42:05.310

Van Carlson: That i'm sure, at one point everybody thought they had to have or you know, had a good will, you know there's regulations put in place to protect the consumer and protect the state's interest and everything else right, but you get to the point where there's so much regulation.



00:42:06.690 --> 00:42:13.620

Van Carlson: It and every regulation to add more Cox and that's really yeah we're on the same page so that makes sense to.



00:42:13.620 --> 00:42:19.110

Michael Palumbos: me so what so what you're saying is you know I live in New York state, and I know some of the.



00:42:19.320 --> 00:42:23.610

Michael Palumbos: People that listen to this i've seen the statistics there's some people in California.



00:42:23.910 --> 00:42:26.880

Michael Palumbos: We might have a little bit more, you know.



00:42:27.480 --> 00:42:42.360

Michael Palumbos: State regulations than other people so even though there's a federal law that mandates how this is done on top of that, you also have state laws of how things are done and so by domiciled in your C corp.



00:42:42.900 --> 00:42:51.510

Michael Palumbos: You know, via the Indian reservation and that you utilize and where the big companies will go off shore to avoid that those state pieces did I get.



00:42:51.540 --> 00:42:52.470

touch that right.



00:42:53.520 --> 00:42:56.040

Van Carlson: hundred percent and the nice thing about keeping them on shore.



00:42:56.460 --> 00:43:03.630

Van Carlson: You know you're able to still bank wherever you want to bank, we have great breaking relationships out there and you're able to manage you know have your financial advisor.



00:43:03.960 --> 00:43:11.700

Van Carlson: guys like you manage the reserves, you know and that and that's really a big thing too, I mean money needs to make money right, I mean don't have you just don't put $1 sign of a.



00:43:12.000 --> 00:43:18.840

Van Carlson: 831 be plan to stare at it, you know, so you know there's that's really was another big more exciting part of the planning opportunity, you know.



00:43:19.110 --> 00:43:22.980

Van Carlson: When I was doing the property casualty insurance executives, you know I got to know those guys, I was.



00:43:23.610 --> 00:43:28.230

Van Carlson: I was pretty successful at it, so I you know I went to conferences and spoken all that stuff and.



00:43:29.010 --> 00:43:35.760

Van Carlson: And I remember talking to those executives and they're like yeah you guys sell it, but you know really the exciting part goes on in the back room when.



00:43:36.120 --> 00:43:47.370

Van Carlson: You know they're moving a billion dollars around you know what are we gonna do with our billion dollars this year that's a little bit more exciting about me selling a home and auto insurance to you know, a family that has moved into my town, but.



00:43:48.390 --> 00:43:52.380

Van Carlson: So I say that she can talk a little bit, but it's true you know.



00:43:53.070 --> 00:44:00.300

Van Carlson: You know you're able to build these reserves up and it does become a very sizable asset class for business owners, you know it can be a game changer it can be.



00:44:00.630 --> 00:44:09.930

Van Carlson: The ability to grow your business to get out of your business, you know that's the biggest you know semi always happens who's who's our traditional who's your typical client.



00:44:10.590 --> 00:44:23.010

Van Carlson: And, and I kind of say it and it it's it's just where we're at today, you know, give me love or hate or whatever, but the reality is is you know a lot of people put their blood, sweat and tears in their business.



00:44:23.730 --> 00:44:29.970

Van Carlson: every dollar they ever made they put back in their business, there were so successful they sent their kids off to school.



00:44:30.810 --> 00:44:36.630

Van Carlson: Thinking they were someday going to come back and take the business over and they got other interests and God bless them for doing that.



00:44:37.440 --> 00:44:42.180

Van Carlson: But they don't want you to do it, the business and now, where are they they're staring at it going, what are we going to how we get out of here.



00:44:43.050 --> 00:44:47.730

Van Carlson: And that's The biggest challenge business owners have, I think, small business middle market business owners have today.



00:44:48.210 --> 00:44:54.780

Van Carlson: You know, obviously there's a lot of money out there, I think some businesses are being parties more so this year than i've ever seen with small businesses but.



00:44:55.290 --> 00:45:03.000

Van Carlson: You know that's because we're at today to you know right, but my whole thing is, you know if we can bring different solutions to other problems.



00:45:04.080 --> 00:45:15.720

Van Carlson: and manage risk more effectively, I do think you owe it to business owners business owners owe it to themselves to understand this code is whether you want to do it or not.



00:45:16.260 --> 00:45:25.740

Van Carlson: I will tell you all your clients are eventually going to hear about it all the business owners need to understand it and they'd really, this is one of those tools, where you have to work on the business and not in the business.



00:45:26.880 --> 00:45:33.840

Van Carlson: and understand it, and whether in fully understand the risk you're taking know that there's a little heat coming from the irs on it.



00:45:34.200 --> 00:45:46.500

Van Carlson: and understand why there's rules and regulations put in place that you may not like it times, one of them being potentially paint other people's proportion of people's claims, but if you don't have that that's that's a red flag i'm just telling you.



00:45:47.610 --> 00:45:54.030

Van Carlson: You know, all those things that you know I think it's very important business owners, today it for the survivability of their business.



00:45:54.420 --> 00:45:55.200

Van Carlson: That makes sense.



00:45:55.230 --> 00:45:55.680

Michael Palumbos: So that.



00:45:55.860 --> 00:45:57.570

Michael Palumbos: So now i'm a business owner let's.



00:45:57.630 --> 00:46:07.890

Michael Palumbos: just say i've done the work we've put this together i've been utilizing for 15 years i'm 65 years old i'm 60 years old.



00:46:08.220 --> 00:46:17.880

Michael Palumbos: And you know i'm about to sell my business what happens with you know you know the the captain I.



00:46:17.880 --> 00:46:18.990

Michael Palumbos: don't you know.



00:46:19.020 --> 00:46:23.250

Michael Palumbos: Do I sell that to somebody else how do I get out of this thing what happens with that.



00:46:23.850 --> 00:46:33.540

Van Carlson: couple things couple things you know it becomes a selling of stock you sell the stock back to the corporation dissolves and you know, and you take your reserves out as capital gain.



00:46:35.040 --> 00:46:51.330

Van Carlson: that's one thing The other thing we see a lot of times in businesses is you know, because they have warranties they have promises made in the future, a lot of times businesses get devalued because of that it's time to sell so we'll tell clients hey keep this 831 feet plan open.



00:46:52.530 --> 00:46:58.410

Van Carlson: If any of these claims come up in the future, you know, a three year for year warranty whatever you've done with your.



00:46:59.040 --> 00:47:05.970

Van Carlson: Now you're able to keep those reserves in place and hey if there's the kind of comes through these are the reserves we're going to pay to make these claims now, not only do you get a.



00:47:06.510 --> 00:47:11.070

Van Carlson: You avoid the devaluation Now you can actually ask for a premium.



00:47:11.940 --> 00:47:18.960

Van Carlson: And again guys that's a great tool for business owners right that's that's a can be a game changer again for them, especially at the right time and so.



00:47:19.410 --> 00:47:33.660

Van Carlson: For me it's a huge tool on so many levels, but the reality is you know say hey I call no joy, you can decide hey you know, will allow business owners and again, these are our rules, but while business owners up to three years, not to fund their insurance going up there a 31 be.



00:47:34.860 --> 00:47:44.940

Van Carlson: will still keep the maintenance fees going and everything else that's manageable, but will allow up to three years for them to close that 831 B plan down once the operating company has been sold.



00:47:46.410 --> 00:47:52.140

Van Carlson: And so that and again it's coming out capital gains and and and you know we hope our clients went on all that.



00:47:52.830 --> 00:47:57.900

Van Carlson: they're winning today through you know way the tax codes are written, but we know that can change and.



00:47:58.530 --> 00:48:08.100

Van Carlson: You know if that's again, I will tell this business owners all time I get the motivation, you know no different than the 401k you Congress created the the tax incentives to do the program right.



00:48:09.450 --> 00:48:15.120

Van Carlson: But understand that if that's your motivation to do just defer then we probably use it for you.



00:48:15.900 --> 00:48:21.270

Van Carlson: Certainly not the client, we would like i'm sure there's other administrators, that would love to have your business and.



00:48:21.570 --> 00:48:31.530

Van Carlson: You know the crazy thing is when we first started, I mean like we had a lot of business owners get motivated that way and, and that was fine in a way, but with time they really start to become.



00:48:32.490 --> 00:48:42.450

Van Carlson: A better client is all I would say the there there there, you know as you get older you get a little bit wiser and you've heard the saying that I was able to suffer some of these prophets.



00:48:42.810 --> 00:48:55.290

Van Carlson: build these reserves up in the back room i'm just going to sleep easier night and again that's that's his what clients tell us and that's that's the greatest compliment, we can get from any of our clients I think that's true of any consulting professional.



00:48:55.680 --> 00:48:56.490

Michael Palumbos: Sure, so.



00:48:56.700 --> 00:48:58.110

Michael Palumbos: So let's talk lugs.



00:48:58.140 --> 00:49:06.480

Michael Palumbos: Make that analogy and tell me if i'm right or wrong on this, but if i'm utilizing a 401k for my employees and myself.



00:49:07.020 --> 00:49:15.720

Michael Palumbos: i'm putting my money in the I can do it before tax or after textbooks a traditional 401k is I use my before tax money and put it in there.



00:49:16.140 --> 00:49:26.100

Michael Palumbos: It grows tax deferred for you know and then upon retirement after age 59 and a half i'm taking that money out and i'm paying income taxes on it right.



00:49:26.520 --> 00:49:38.490

Michael Palumbos: And during the time that I was that you know there I needed to take a loan from it, I could there was you know, depending on the rules of the plan and whatnot, so in that so that's the 401k which is you know people are familiar with.



00:49:39.300 --> 00:49:54.420

Michael Palumbos: With the 831 tell me if i've got this right with the 831 plan what's happening is i'm setting aside before tax dollars for all the risks that I may be the intangible risks that I may be facing and they keep mounting.



00:49:54.420 --> 00:49:54.720

Van Carlson: up.



00:49:54.930 --> 00:49:57.480

Michael Palumbos: On all of us on a pretty regular basis.



00:49:57.750 --> 00:50:01.830

Michael Palumbos: That money goes into the 4830 who I will set it into the 831 a B.



00:50:02.310 --> 00:50:09.210

Michael Palumbos: It goes into the 831 be and it's an 831 be is just the tax code that's written, just like 401k people don't realize.



00:50:09.600 --> 00:50:11.370

Michael Palumbos: Just the tax code, so the 831 be.



00:50:11.490 --> 00:50:18.120

Michael Palumbos: So the money goes in there and then through the years that i've been paying premiums for the different risks that we're ensuring.



00:50:18.330 --> 00:50:19.590

Michael Palumbos: Based on you know.



00:50:19.710 --> 00:50:24.930

Michael Palumbos: A conversation and some consultation that they're working with you and then you're putting those pieces together.



00:50:25.110 --> 00:50:40.830

Michael Palumbos: They may have some claims throughout the course of the 1015 years that they're in there and that's there for the benefit when those claims are paid out to them how are they receiving that money so let's say I had a claim on my brand I had a hit of.



00:50:41.190 --> 00:50:44.460

Michael Palumbos: $50,000 it cost me and it's on non-insured.



00:50:44.520 --> 00:50:45.930

Michael Palumbos: how's that money coming out to me.



00:50:46.680 --> 00:50:51.300

Van Carlson: So so well, there has to be an underwriter yes, the claims process and duplicating another claim.



00:50:51.780 --> 00:50:57.870

Van Carlson: We have a process of that typically we look at the previous years, gross revenues we compare him to the loss of income.



00:50:58.140 --> 00:51:09.000

Van Carlson: And is there a loss of income and then is there any outside influences of that loss of income, not just the brand right so there's gotta be some adjudication of claims going on, again as we as administrator that's our job.



00:51:09.480 --> 00:51:19.920

Van Carlson: And then, what we'll do those we utilize a fronting company what I mean by that is is with there's actually a new shirt that we have a big box think of that is a mothership no different than.



00:51:21.180 --> 00:51:37.560

Van Carlson: Compared to a 401k would be a clearing out Schwab something like that right, so the money comes through so what what happens is will say to legitimate claim there's damages we able to assess the interstates and Max clean let's say the policy was half a million dollars just saying.



00:51:39.120 --> 00:51:47.700

Van Carlson: The clients on the House for the first 250,000 of that so it's going to come out of there a 31 be plan it's going to go to the mothership box.



00:51:48.120 --> 00:51:52.140

Van Carlson: With the mothership also retained some risk so it's got to put some money into it.



00:51:52.440 --> 00:51:59.100

Van Carlson: And then it's got to go out to everybody that the State was a brand damage, so if we had 400 clients, depending on the amount of premium on a pro rata sharing.



00:51:59.520 --> 00:52:08.910

Van Carlson: we're going to come back in and put the money in there and then the mothership is going to write a check for $500,000 minus 30 documenting everything else back to the operating company.



00:52:09.750 --> 00:52:15.210

Van Carlson: Now I will just tell you this that sounds complicated and we're not here to build a rocket ship, but I will say that.



00:52:15.750 --> 00:52:26.190

Van Carlson: We we have really good educational videos that go through the process move the claim scuba client under so they and again this is part of their education, I think it's extremely important for them to get educated.



00:52:27.450 --> 00:52:36.420

Van Carlson: know enough to be comfortable with it, move forward or not move forward and then after that know that they have administrative, like us, that will help them in the always answer the questions but.



00:52:37.170 --> 00:52:42.540

Van Carlson: They don't become insurance expert I guess the point i'm trying to make there, so you know but it's very it's a very.



00:52:43.980 --> 00:52:45.330

Van Carlson: long way you don't.



00:52:45.450 --> 00:52:47.430

Michael Palumbos: Get that cash to take care of that.



00:52:47.460 --> 00:52:51.600

Michael Palumbos: thing is that yeah absolutely that's what I was trying to figure out what it.



00:52:51.690 --> 00:52:55.260

Van Carlson: Does become income to the business right so whatever expenses even.



00:52:56.820 --> 00:52:58.770

Michael Palumbos: Just like any ordinary insurance claim.



00:52:59.160 --> 00:53:07.980

Van Carlson: This like a business interruption claim, you know it is an ink you know it's an income protection policy, you know no different than the proper term yeah okay yeah.



00:53:08.010 --> 00:53:13.380

Michael Palumbos: So then answers, one question now I retire in a closed down the.



00:53:13.620 --> 00:53:16.350

Michael Palumbos: The 831 be three years after I.



00:53:16.410 --> 00:53:17.790

Michael Palumbos: sell the business.



00:53:18.360 --> 00:53:20.070

Van Carlson: whatever they may be.



00:53:20.640 --> 00:53:29.430

Michael Palumbos: If I understand what you're saying at that point it's either whatever's in my C corp is that right they might reserves that I.



00:53:29.460 --> 00:53:38.340

Michael Palumbos: built up if I pull them out of there now when I pull them out of there, instead of being ordinary income tax they're going to be capital gain tax.



00:53:38.970 --> 00:53:53.580

Van Carlson: Correct for OK, so the premium season from the premium season, I should mention, and you know to kind of where i'm at today, and because we don't talk about taxes that much but it's important for business owners again it's like everything it's part of the rules right part of the game.



00:53:55.020 --> 00:54:05.190

Van Carlson: I think I don't know if I said this and shame on me for not saying this earlier, but the reason why the 30 white, the reason why you want to elector the 31 B is the premium you put end of the 31 be.



00:54:05.760 --> 00:54:20.340

Van Carlson: Is not taxable income to that seek or the only thing that is taxable is the investment on the income returns of that of those are premiums, so the premium going into the end of the 831 the plan.



00:54:21.060 --> 00:54:31.080

Van Carlson: Is not income, so it doesn't get taxed at corporate rates there's the big advantage right, one of the biggest yeah one of the biggest knocks on T corpses the double taxation.



00:54:31.620 --> 00:54:39.030

Van Carlson: right if I take a distribution it's not a deduction if I, but you know, but the biggest thing is the premium going into these things.



00:54:40.200 --> 00:54:55.560

Van Carlson: Under the 31 be tasks and up to $2.3 million per year will not it's not taxable income, it is recognized income but it's not taxable income it's only the investment income on those reserves that get taxed that.



00:54:57.120 --> 00:55:08.820

Van Carlson: I mean motivation that's where the deferral taxes come, but you know it speaks to where we're at today, I mean you know again the motivation, you know, sometimes it's for taxes, but for us it's about risk mitigation and that's again.



00:55:09.810 --> 00:55:11.910

Michael Palumbos: Get that I was just trying to look at some of the mechanics.



00:55:12.060 --> 00:55:22.230

Van Carlson: People could understand it that's where the rub is right so you're not being taxed on the premium, so if i'm putting a million dollars a year and i'm different and i'm operating company under 162 lines deductions is.



00:55:22.680 --> 00:55:31.380

Van Carlson: Ordinary unnecessary expenses and then i'm putting it into an 831 be i'm not paying a million dollars in corporate taxes on the main i'm only paying what the investment income is.



00:55:31.770 --> 00:55:43.950

Van Carlson: And then i'm coming out the other side of the dividend our capital gains yeah there's some tax arbitrage going on absolutely currently there is down the road, there may not be you know again going to be doing it.



00:55:44.100 --> 00:55:45.450

Michael Palumbos: for the right reasons which is.



00:55:45.510 --> 00:55:48.000

Michael Palumbos: Go back to 1986 when they did that tax reform.



00:55:48.180 --> 00:55:54.150

Michael Palumbos: If you're just if you're they got rid of the loopholes, because people were doing real estate deals for just the.



00:55:54.150 --> 00:55:59.100

Michael Palumbos: tax purposes and all those things became worthless, so if you're going into.



00:55:59.400 --> 00:56:02.370

Michael Palumbos: This you know the session this that you know the.



00:56:02.850 --> 00:56:09.930

Michael Palumbos: 831 be just for the tax purposes that's wrong thinking and that's in your and you're going to get and you're going to get burned.



00:56:10.200 --> 00:56:16.890

Michael Palumbos: You know, eventually along to the right thing to be doing is exactly what you're doing do these things right protect your business.



00:56:17.400 --> 00:56:29.790

Michael Palumbos: allow yourself to sleep at night with some of these things, then there's risks that are uninsured there intangible and it really does make sense to this is something that would be worth exploring if somebody wants to explore these things with you.



00:56:30.810 --> 00:56:34.320

Michael Palumbos: If i'm not mistaken, they can go to 831



00:56:34.680 --> 00:56:35.280

Van Carlson: Right at.



00:56:35.910 --> 00:56:39.630

Michael Palumbos: 831 beat calm is your website and.



00:56:39.870 --> 00:56:42.690

Michael Palumbos: You know, you can you can connect with them there.



00:56:43.470 --> 00:56:48.210

Michael Palumbos: I betcha you probably do some webinars and some things that you know people could.



00:56:50.490 --> 00:56:50.970

Michael Palumbos: yeah and we.



00:56:52.590 --> 00:57:04.950

Van Carlson: were an educator or an educator out there and and again it's it's it's been a fun fun road and it continues, I mean last year was proof of concept for a lot of our business owners and, unfortunately.



00:57:06.690 --> 00:57:16.260

Van Carlson: For some of them may be too late, but you know if you're still in the game and you still trying to run a business, again I can't emphasize that enough, you need need to know and understand about it.



00:57:17.280 --> 00:57:21.510

Van Carlson: enough to where you can make a qualified decision great.



00:57:21.930 --> 00:57:27.510

Michael Palumbos: Well, this has been really helpful for me because, like I said, you know we hear the buzzwords and we hear the.



00:57:27.690 --> 00:57:43.140

Michael Palumbos: You know, we like tax strategies tax reduction strategies, we do not like anything that has the potential of being devastating in the wrong areas and you brought to light all the good reasons around utilizing a 31 beat plan and.



00:57:43.710 --> 00:57:55.650

Michael Palumbos: we're not out here, you know, we are not endorsing 831 be plans, this is just you know really been educational and done a really good job with this and I appreciate your time van carlson.



00:57:56.250 --> 00:58:04.530

Michael Palumbos: 831 beat calm, is how you find him my name is Michael Columbus i'm with family wealth and legacy in Rochester New York, and we are so glad that you.



00:58:04.980 --> 00:58:11.820

Michael Palumbos: That you turned in make sure you subscribe, so that you don't miss an episode as we're coming down the future with these things have a great day, everybody.

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*not affiliated with Lincoln Financial Advisors Corp.

Michael Palumbos is a registered representative of Lincoln Financial Advisors Corp. Securities and investment advisory services offered through Lincoln Financial Advisors Corp., a broker/dealer (member SIPC) and registered investment advisor. Insurance offered through Lincoln affiliates and other fine companies. Family Wealth & Legacy, LLC is not an affiliate of Lincoln Financial Advisors Corp. Lincoln Financial Advisors Corp. and its representatives do not provide legal or tax advice. You may want to consult a legal or tax advisor regarding any legal or tax information as it relates to your personal circumstances.