A trust account would be a separate physical location into which the premiums are deposited and held, but in whose name the funds are held varies (and has potential adverse consequences).  There are strict rules as to how the account should be properly established and on whose books the amounts are reflected.  Normally, whatever entity receives the W-2 on the corresponding interest earnings would need to account for the premiums (and associated reserves).




Sharing of profits – The normal trust account relationship allows the producer to share in most of the underwriting profits and investment income.


Simpler structure – This structure is more complex than a simple retrospective commission, but less complex than a Reinsurance Company.


Higher income than retrospective commission – Because underwriting profits and investment income are normally shared in this profit-sharing method, the income potential is normally higher.




Business taxed at Direct Writer Level – The business would probably be taxed at the Insurance Carrier level, resulting in double taxation just like the Retrospective Commissions.


Recent tax court activity – Conversely, if the Insurance Carrier is not reporting the business on its’ books, there is significant potential tax liability to the dealer (see Rameau Johnson vs. Commissioner).


Ordinary income – The profit distribution to the dealer is treated as ordinary income, at the dealer’s (or dealerships) individual tax rate.





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