Why are Insurance Audits Important?

26. July 2018 11:28 by Megan Kunis in

An insurance audit is when an insurance company checks on the payroll or revenues of a customer or policyholder, to ensure that the policy reflects accurate rating information. Audits are common with all Worker's Compensation policies, many general liability policies, as well as some marine policies and other kinds of insurance.

Here's why audits are important: insurance policies are rated based on many different metrics, many of which we just do not know at the beginning of a policy term. For example, if a rating metric for a development is the number of acres in the development, that number won't change.  If the grading metric is gross revenues or gross payrolls, we don't know the true revenue or payroll until after the policy is over. The audit helps the insurance company to rate insurance policies most accurately.

Imagine you have a business that typically generates $1 million in revenues.  If you tell your broker that your business does only a half million dollars in revenues you may get a one year break in your insurance costs. The audit, however, is the mechanism insurance companies use to keep you honest.

The rating metric that drives Worker's Compensation costs is payroll. This makes sense: the more employees working at a place, the higher the payroll; this ties to the greater the exposure for somebody to file a claim.

Underestimating Payroll or Gross Revenues

Underestimating payroll or revenues for an insurance program carries some risks. Suppose a business does $1 million in sales and the general liability is based on that rating metric. To save money the business owner tells the insurance company their sales are only $500,000. Let's say the insurance costs $5,000 under these assumptions; you'd think the business saved $5,000. But when the audit uncovers the fact that the business does $1 million in sales, last year's policy cost is adjusted retroactively by $5,000 to get up to $10,000 in this example. (The additional $5,000 is due right away because it's for last year's policy.) Further, the insurance company has seen this tactic once or twice before.  In the interest of collecting a proper amount of premium for the new year, the insurance company will also update the estimated sales for that policy year to $1 million resulting in an additional $5,000 charge. This is the double whammy scenario: the insurance company collects the retroactive premium, as well as adjusts the current policy to reflect the reality: in this case resulting in a total $10,000 additional charge on what was budgeted as a $5,000 insurance cost.  This isn't good for cash flow or for relationships between risk partners. Underwriters don’t have a great sense of humor when it comes to mis-reported rating metrics.

We counsel our customers to be as accurate as possible or slightly underestimate projections so that audit adjustment is minimized, and premiums are paid as revenues and payrolls are accounted for.

A new trend in workers compensation is rendering these audits nearly obsolete. Worker's Compensation charged through a payroll service company allows Worker's Compensation expenses to tie almost exactly 2 labor expenses.

The Good that Comes from Audits

Not all is bad about audits. When sales come in below true expectations, most policies provide for return premiums under these circumstances. Some surplus and excess policies do not make such allowances, however, so it is important to discuss projected revenues and payroll with your professional agent or broker.

The audit exercise is typically a simple process of providing evidence of sales (income statement or tax reports) or payroll (941s and similar tax forms). However, we know it isn’t something anybody wakes up in the morning looking forward to doing. Thus, occasionsionally businesses don't get around to completing audits for their insurance company partners right away. The standard recourse is effective, but a nuisance: when an audit is not completed they generate an "assumed audit". Here the insurance company simply assumes that your payroll or revenues increased by 50% or more, generating a huge bill for the retroactive policy as well as a huge bill for the new policy. When an audit is not completed in a timely fashion the insurance companies leverage is often this giant bill. This is when the accounts payable folks get over to the bookkeeper to get that audit done. We work with our customers on expediting such events, but encourage prompt completion of any audit to avoid such unpleasantries.

In the contracting environment where a general contractor engages several types of subcontractors, the auditor will charge for costs of uninsured sub contractors much differently from insured subcontractors. When an uninsured contractor causes a loss, the general contractor's insurance may be responsible for covering a loss, therefore the attendant charge will be included for his policy.  Certificates of insurance properly organize and document insurance of subcontractors to reduce the effects of an audit on the general contractor's insurance program. See our separate blog on certificates of insurance

Be Prepared

Don't let an audit surprise you or catch you off guard. Here, we try to advise you in a way that results in the best possible insurance program while protecting your cash flow and budget. Don't hesitate to call or contact us if we can assist with achieving these common business objectives.

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The most common mistakes when managing personal finances

18. July 2018 11:30 by Megan Kunis in

The ability to manage money competently is especially valuable quality in the conditions of financial crisis, when the purchasing power of the population is shrinking, inflation is rising, and currency exchange rates are completely unpredictable. Below are the common mistakes related to money affairs along with financial planning advice to help manage your own finances properly.

The budget is the most basic thing in financial planning. It is therefore especially important to be careful when compiling the budget. To start you have to draw up your own budget for the next month and only after it you may make a yearly budget.

As the basis takes your monthly income, subtract from it such regular expenses as the cost of housing, transportation, and then select 20-30% on savings or mortgage loan payment.

The rest can be spent on living: restaurants, entertainment, etc. If you are afraid of spending too much, limit yourself in weekly expenses by having a certain amount of ready cash.

"When people borrow, they think that they should return it as soon as possible," said Sofia Bera, a certified financial planner and founder of Gen Y Planning company. And at its repayment spend all that earn. But it's not quite rationally ".

If you don't have money on a rainy day, in case of an emergency (e.g. emergency of car repairs) you have to pay by credit card or get into new debts. Keep on account of at least $1000 in case of unexpected expenses. And gradually increase the "airbag" to an amount equal to your income for up to three-six months.

"Usually when people plan to invest, they only think about profit and they don't think that loss's possible", says Harold Evensky, the President of the financial management company Evensky & Katz. He said that sometimes people do not do basic mathematical calculations.

For example, forgetting that if in one year they lost 50%, and the following year they received 50% of the profits, they did not return to the starting point and lost 25% savings. Therefore, think about the consequences. Get ready to any options. And of course, it would be wiser to invest in several different investment objects.

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Not one but two - The power of having a dual strategy!

7. April 2018 10:11 by Megan Kunis in



Michael Porter's view is that when businesses speak of strategy, it is their relative competitive position in the marketplace to their competitors, that is the only true strategy. For example it might be taking a cost leadership position or a high end quality position. His view is that if companies try to target a number of strategies, it leads to confusion both for the customers and internally for the business itself.

Porter's view is that to be truly successful, a business should focus on one strategy and nail it. Porter quite rightly argues that all other business initiatives e.g. outsourcing to low cost countries, acquiring a competitor, or eliminating waste, are in fact not strategies, but ways in which businesses achieve their single strategy, which is their "SCA".

Mindshop's "Sustainable Competitive Advantage" or "SCA" tool is a good practical approach to define your businesses competitive position. 

A company that is challenging Porters view and is in fact smashing their competitors through a dual  approach to strategy is Singapore airlines. Many have said it cant be done, but a study in the July 2010 Harvard Business Review showed not only a company adopting a dual strategy of cost leadership and high quality very well, (one example cites airplanes with the best first class seats in the world, while high level executives work out of an airport hangar in Changi airport), the airline also leads all the key indicators of a successful global airline such as profitability, customer satisfaction, cost per km and so on.

Whether your business model is defined by a single approach to strategy, or dual approach to strategy, make sure that it is clear, and not only resonates with your customers, but also gives your business an edge on your competitors.

Next week in this series of "burying your old business model", we will look at innovation, with some great examples of some businesses who are thriving in some of the toughest industries using innovation.

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Tax Pyramiding

30. January 2018 11:29 by Megan Kunis in

Pyramiding in a tax system refers to the imposition of a tax on a tax. It typically happens with taxes that are imposed on goods or services, such as a sales tax. Pyramiding causes a tax to violate several principles of good tax policy, including transparency, efficiency, equity and neutrality. For example, in California, most food purchased at the grocery store is exempt from the sales tax. However, the price paid for that food includes sales tax paid by all businesses in the production and distribution chain to get that food into the store. When a business pays a tax, it is one of many costs factored into its operations that either goes into the price of what the business sells and/or reduces profits. This effect makes the sales tax fail the transparency principle in that when you buy an item (whether tax exempt or not), the true amount of sales tax included in what you pay is not obvious due to pyramiding; the sales tax paid is definitely more than what is noted on your sales receipt.

The degree of tax pyramiding varies from state to state depending on the types of sales tax exemptions they provide to businesses. For example, California exempts purchases for resale. So, when the California grocery store buys food, it doesn't pay sales tax. Yet, it has paid sales tax on all of the equipment and other tangible personal property used in the store (supplies for example). Some states have reduced pyramiding by providing sales tax exemptions for certain types of equipment purchased by businesses, such as that used in manufacturing. Typically the rationale for such exemptions is to entice businesses to locate their manufacturing operations in the state.

The remedy for tax pyramiding is to not have businesses pay sales tax. If they don't pay the tax, then it won't be factored into pricing. There are two big obstacles to fixing pyramiding though:

  1. Pyramiding has been around since the beginning of the sales tax and it generates revenue for the state (likely at least 20% of the state sales tax comes from businesses). How do you replace that revenue?
  2. Many people (including lawmakers) think that businesses have too many tax breaks and are not paying their fair share and would not support legislation to make all business purchases exempt from sales tax.

Despite these obstacles, there are reasons to remove pyramiding from the sales tax system and ways to deal with the obstacles. First, there are other reforms needed to the sales tax system, such as base broadening (along with rate reduction; see my Report #2a at the link below). Revenue generated from that change can cover the revenue generated from pyramiding and be a more equitable and transparent way to generate sales tax revenue. Removal of pyramiding would likely generate increased business activity in the state because the price of doing business here would drop - other tax revenues should go up from the change. Also, taxpayer education would help. Individuals need to see the hidden cost of pyramiding (which they pay; businesses pass most costs onto customers). It would be more clear to individuals how much sales tax they are paying if the sales tax shown on the sales slip is the total amount and that will only happen if pyramiding is removed from the sales tax system.

The pyramiding flaw is a U.S. one. All industrialized countries other than the U.S. use a value-added tax to tax consumption (rather than a sales tax). A VAT that does not allow for exemptions and special rates does not impose a VAT on businesses purchases.

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How Accountants Can Grow Year-Round Business And Increase Client Loyalty

18. January 2018 16:33 by Megan Kunis in

Suddenly, it's tax season. Clients are pouring in, and your accounting firm has never worked so hard! Then the dust settles, and there's not as much work for long stretches of time. 

Today's accountants are expanding their service offerings beyond year-end taxes.  To create time for these profitable clients however, firms must first strategically scale back their relationships with unprofitable clients.

Making the investment in the right clientele nowwill save you time and money later. This whitepaper shows you how to attract more clients, choose the right ones, and maximize their business throughout the year.

Fill out the form on this page for an instant download.  You'll also receive a convenient link back to the document by email so you can download the file to your other devices.

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Importance of Timing in Asset Protection

20. December 2017 17:45 by Megan Kunis in

Importance of Timing in Asset Protection. Today, let’s study the important component of timing when you do an asset protection plan. Let’s first ask when is the best time in order to undertake asset protection. Well the answer is simple. It is before any lawsuit or claim arises against you. Why? Because it allows you and enables you to do planning for what is called a rainy day. And in reality what you want to keep in mind always with planning for asset protection is that you want it to be complementary to an overall estate planning objective such as minimizing your estate taxes and so forth. So what happens if you do start to do some asset protection planning after a lawsuit or claim arises where you are basically looking at two different situations.

1.      With reserves. So let’s say that you have a million dollars in asset and someone comes up to you for two hundred thousand dollars. While you are completely allowed to extract $ 800,000 out of your assets and basically set it aside and protect it from the lawsuit. It is called the no harm no foul rule so to speak because there is sufficient asset to satisfy the claim.

2.      The second situation is basically with no reserve. This is when you chose to basically strip yourself from any equity from your belongings. That is a rather dangerous approach, one I would definitely not recommend.

Why is that? Because you would be entering into what is called fraudulent transfer. Fraudulent transfer is a term of art that basically claims an assertion against the debtor; the debtor is the person that owes the money, where that person undertakes some asset protection when he or she knows there is a present creditor or an individual coming after them for a specified amounts. So if you do that and you have the intent to hinder, delay, or defraud the creditor you would be clearly in the fraudulent transfer universe.

Now when you have the specific intent to bypass that lawsuit it is easy to claim a fraudulent transfer and that is basically when you enter, what people call, a natural intent to defraud. The truth is you know, in all my years, most people don’t go ahead and volunteer the specific intent, “Oh yes, I really did want to bypass this lawsuit and I had the actual intent to defraud this creditor.” So what the law has created is called batches of fraud which is basically a test with series of element and upon meeting some of those elements they will be able to determine that they indeed did have the intent to defraud the creditor.

So hopefully that was a helpful piece of information. If you want to find out more about this then go ahead visit our contact us page  and we  will be happy to talk about your situation.

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Prenuptial Agreements Key Issue in Asset Protection

28. October 2017 12:04 by Megan Kunis in


One of the issues most likely to adversely affect your wealth is a simple statistic: nearly 50 percent of marriages end in divorce.
With the summer wedding season upon us, it’s time for a simple discussion of prenuptial agreements and why they must be part of every business owner, executive and physician’s risk-management plan.
I answer some of the most common client questions below:

Q: What is a prenuptial agreement or “Pre-nup”?

A: It is a legal agreement entered into between two people before they are married that that can cover a wide variety of issues centered on property rights and assets. In addition to the traditional role that most people think of (dictating the division and distribution of a variety of physical assets and setting terms for any required spousal maintenance at divorce), pre-nups can also cover death, incapacity, estate planning, and a variety of other legal issues including the division and attribution of income earned during marriage.

Q: Can I do it myself or with an online “kit”?

A: You can but you certainly should not. The laws regarding the requirements and enforceability of prenuptial agreements are specific, unforgiving, and vary widely from state to state. Further, some states actually require that each party has their own lawyer in place that they have reviewed the agreement with.

Q: What has to be in a pre-nup?

A. While the laws vary from state to state, these are the most common requirements:
1. Full and accurate disclosure of all assets by each party. Failure to disclose any assets can not only jeopardize the applicability of the pre-nup to that one asset, it can invalidate the entire agreement in the worst cases;

2. The agreement is done well in advance of the marriage and is free of any duress or eleventh-hour presentation that could have made someone feel forced to sign it under the threat of calling off the wedding;

3. Both parties have counselor at least had an opportunity to consult with counsel and were explicitly advised to do so.

Q: I’ve been married and divorced before; do I need a pre-nup for a later marriage?

A. Absolutely. The odds of a second marriage ending in divorce are over 60 percent and climb to 70 percent in a third marriage. Moreover, you will have less time to earn, save, and rebuild wealth than you did the first time around in a substantially more demanding medical business climate.
I routinely talk to doctors and other successful people who have had years of high income and who amassed significant wealth but didn’t investigate protecting it until they had already lost half or more of their hard earned net worth to a divorce. When I ask if they had a pre-nup the response nearly always the same, in fact alarmingly identical, “We didn’t have anything when we got married, we ended up successful and never thought it would happen to us…”
As an asset-protection attorney, I warn clients that there are several things I don’t protect them from. These include not paying taxes or other criminal acts and the person they are already married to, one of the life events that routinely costs people more than 50 percent of their net worth. I also routinely raise this issue with single clients of both sexes and advise them equally to get a pre-nup and to introduce the idea today if they are considering marriage.
I’ve seen too many people that went against the advice of their counsel lose or risk half a lifetime of work because they were afraid or unwilling to have a tough, serious conversation about the possibility of a divorce when they could still do something about it. I’ve also seen a substantial amount of emotional blackmail at play, most commonly the other party saying that it’s insulting, it’s not about money and the most ridiculous, “If you really loved me you wouldn’t ask me to sign this.” My response? If it is in fact not about money, you can sign it, this proves it. While these are certainly not the words of a relationship expert I need you to get your head around this: No one who you actually should marry will let this be a deal breaker.

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14. October 2017 13:04 by Megan Kunis in


Should a foreign situs asset protection trust own real estate? This has been a question of some contention, although less-so over the last number of years. The answer to this question is, “yes, why not?”

This answer is supported by two recent litigation matters in the author’s office that settled very favorably, including the fact that the U.S. real estate owned by each planning structure was left undisturbed as a result of each settlement.

One of these cases involved a trustee in bankruptcy as the adverse party, and the other involved the federal government as the adverse party. In each case, the adversary party stated one of the reasons it was settling was because of the difficulty it faced in pursuing assets held in a foreign situs trust settled years earlier. The author’s office has seen the same or similar results many times over the course of the past 25+ years.

Thus, while it is true that movable assets can be more easily protected than immovable assets, these two settlements (and others) demonstrate the positive results that can follow from simply executing a transfer deed and vesting ownership of the real estate in the hands of the trustees of the trust.

Stated another way, the negative results of leaving real property out of the planning structure are far more certain than are the positive results of transferring ownership of real estate to the trust. In the case of the latter, the only way things can go is up.

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Beware Of Domestic Asset Protection Trusts

13. September 2017 14:19 by Megan Kunis in

The Domestic Asset Protection Trust ("DAPT") is an irrevocable trust that allows the settlor (or creator) of a trust to be a discretionary beneficiary.  While this trust has some advantages, it should not be used for Asset Protection as recent litigation has highlighted concerns about the DAPT, as it is often an inadequate entity to protect assets.  The DAPT is often referred to as a "self-settled trust" because the settlor is one of the beneficiaries.  Self-settled trusts allow the trustee to have the discretion of whether to make distributions to the settlor, while simultaneously protecting the assets from the settlor's creditors.The primary goal of the DAPT is to protect the assets of the settlor from their creditors.  The DAPT may also allow a settlor to transfer assets to a trust, preventing these assets from being included in the settlor's gross estate.

The major disadvantages of using the DAPT as a personal asset protector are as follows:

  • In creating a DAPT, you are more susceptible to litigation on your trust (fraudulent transfer claim) as Creditor's use this argument often to break through DAPT trusts to get to debtor assets.
  • The laws of the state where the DAPT is formed will not necessarily apply where the settlor, beneficiaries, or the trust's assets are not subject to the jurisdiction of the state.  In other words, a DAPT is only valid if the settlor and beneficiaries, as well as the trust assets, are all in the DAPT state.  Further, only twelve jurisdictions recognize the DAPT – so there is little uniformity across the United States.
  • State law pursuant to the Supremacy Clause of the US Constitution does not always bind federal courts.  Therefore, DAPT statutes may not protect the settlor against judgments in federal courts or by federal administrative agencies.
  • DAPT, as self-settled trusts, have a longer statute of limitations for creditors to sue on than most other Asset Protection Tools.

On the other hand, the limited liability company (LLC) and limited partnership (LP) are far more adequate entities for Asset Protection planning.

See more on these entities at the following links:

  • Limited liability companies
  • Limited partnerships

If you have any more questions regarding DAPT's or any other Asset Protection Planning tools, feel free to contact our Attorneys.

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7 Types Of Start-Up Investors You’ll Run Into When Raising Finance For Your Business

29. August 2017 20:45 by Megan Kunis in

Not all investors are created equal. Worth Capital's Matthew Cushen outlines the investors you're likely to meet - and how you can get in their heads


I’ve written before that no-one would dream of launching a product or service without getting into the heads of their consumer, digging into when, where and how often your offer might be purchased and what you are competing against for a share of their purse.

On the same principle, wouldn’t it be sensible to understand the motivations of a potential investor that you are selling your business to, or that has already invested?


Here are a few pen portraits of some investor types you might come across when looking for start-up funding.

Maybe you won’t meet exactly the investors described below, but no doubt you’ll meet these characteristics in an investor in some kind of combination…

1. The ‘Passionate Polly’

This is an investor that is intimately involved in your market, either they are professionally experienced or they have some empathy as a potential user of your product or service, for example, a mother is more likely to understand baby products.

Tip: Be careful in assuming that because someone knows your market that they will understand or appreciate your idea – they may be so entrenched in the standard thinking around the industry they find it hard to see the value of your innovation.

2. The ‘Taxed Trevor’

There are some highly attractive tax reliefs available for investors in start-ups – the Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS). Unfortunately, this can become all consuming for some investors and for them it’s more about working out about how much they will save, rather than the attractions of the business and the growth story.


Tip: Make sure you are all over EIS & SEIS – have your advanced assurance in place and understand and talk about the reliefs your investor can enjoy.

3. The ‘Friendly Freddy’

This is someone with time on their hands, looking for a hobby and ways to gain status. These investors can be a hugely helpful resource, might have helpful contacts and can be a place to seek emotional solace and support – but they can also suck up time.

Tip: Avoid investors wasting your time, either during their ‘due diligence’ or after they have made an investment. Sit down with them to define how they can be helpful and set expectations about when, where and who to involve them.

4. The ‘Helpful Helen’

This is someone with stacks of experience and a relevant black book for you to use. Possibly from the direct industry, you are setting up in, but potentially also with broader but still relevant experience – e.g. in marketing or finance. They are likely to have battle scars that will help you avoid the same mistakes.

Tip: Don’t take the help for granted. Be clear and upfront and agree how they can help. If they can contribute significantly then create some kind of transaction to lock-in the commitment. This could be anything from free product through to some share options that vest upon the growth of the business.

5. The ‘Sweating Simon’

This is an investor that likes to make their money work. They will have a portfolio of investments and, as soon as they make this investment, they will be on to the next one. They are unlikely to want to get involved and you might never hear from them.

Tip: Just because you never have a reply to investor updates, or never get a word of congratulations, don’t think they don’t care. Still, make sure you regularly update them and don’t be shy to ask for help – just don’t be disappointed when you don’t get a response.

6. The ‘Connected Charlie’

The value of this person may not be in them making an investment, but they might know someone who would. Either they are just super well-connected and you can tap into their network informally or their job is to connect investors with opportunities.

Tip: Always finish any conversation with the question “Do you know anyone else who might love our idea and be interested in backing our business?”

7. The ‘Professional Peter’

These are investors that run funds and spend all day, every day, looking for businesses to back. They are likely to be highly structured and clear about what they are looking for – and appreciate that in an entrepreneur.

Tip: These investors have an infrastructure to support so will charge fees for their help, so make sure there is a conversation about fees up front to avoid surprises.

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