Private Retirement Trusts

The Private Retirement Trust (“PRT”) is a flexible, tax neutral retirement planning tool designed to assist California residents (including Non-U.S. Citizen residents) with funding and administering a nonqualified Private Retirement Plan in a manner that leverages California’s unique “creditor exemption” statute.

Although narrow in scope, this statute is powerful if applied to a well-structured and administered PRT, allowing the Plan Participant to convert their exposed “nonexempt” assets into “exempt” retirement assets that are protected from creditors. When PRT assets are exempt from levy or execution by creditors, the Plan Participant has peace of mind that the assets in their PRT will be available upon retirement. Unlike all qualified plans (SIMPLE IRAs or 401(k) plans) and most nonqualified plans, the PRT does not prohibit Plan Participants from engaging in related-party transactions with PRT assets. Plan Participants can integrate their other business and estate planning strategies with their PRT to transfer wealth to family.

Convert exposed “nonexempt” assets into “exempt” retirement assets that are protected from creditors.

With appropriate PRT planning, a Plan Participant can move exposed assets that are retirement appropriate from the weaker to the stronger side of the creditor exemption spectrum to ensure protection for the Plan Participant’s future retirement purposes.

Private Retirement Trust Graphic

*California expressly limits the protection given to IRAs, Roth IRAs, qualified annuities, 403 plans, 414 plans, and 457 plans. The protection is limited to the amount a judge deems necessary for one’s “support” during retirement. (CCP § 704.115(e).) By contrast, the PRT does not have this express limitation. (CCP § 704.115(b).)
**Life insurance cash value is only protected up to $15,250 (doubled if married). (CCP § 704.100(b).)

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Benefits of a Private Retirement Trust

California Benefit. Available only for California residents (including non-U.S. citizen residents).

Tax Neutral, Nonqualified Plan. Contributions by the Plan Participant to the PRT do not confer a tax deduction. A Plan Participant must recognize tax when the PRT assets produce income or gains.

Risk Exposure. California is known for its hyper-litigious legal climate. The PRT is a safe and effective solution for retirement preservation. It is well suited for business owners, especially those with high-risk profiles.

No Statutory Contribution Limits. The PRT allows those who have delayed funding their retirement to “catch up” more than traditional qualified plans allow for. There are no annual contribution limits, only an overall upper bound limitation based on a target retirement benefit that is determined/set forth in an extensive Retirement Appraisal.

No Investment Limitations. The PRT can accommodate those with unique asset classes that do not “fit” into traditional retirement plans. The PRT can own cash, real estate, life insurance, securities, part of a business, accounts receivable, digital assets, promissory notes, etc. Any asset funded into a PRT must be retirement-appropriate and contribute to paying the retirement benefit to the Plan Participant.

Self-Dealing. With a PRT, selfdealing is not prohibited. The Plan Participant and the PRT can co-own property or engage in transactions (such as investing in property via an LLC). A PRT can also be used, when appropriate, to convert otherwise exposed single member LLCs to more insulated multi-member LLCs.

Loans. The PRT may provide loans to the Plan Participant or the Plan Participant’s businesses. Loan documents must be carefully tailored to comply with the rules of the Private Retirement Plan, applicable law, and case precedent.

Structure.The basic ingredients for a PRT include:

  1. An employer Sponsoring Company (typically an S or C corporation that is an operational business).
  2. A Retirement Appraisal that integrates exemption diagnostics with actuarial analysis to target the desired retirement benefit payable monthly or annually upon retirement.
  3. A Private Retirement Plan and a Private Retirement Trust that are designed and used primarily for retirement purposes.
Benefits of a Private Retirement Trust Structure Graphic

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