Protect Your Assets with a Private Retirement Plan

by Bruce Givner on February 26, 2015

The following post was taken from our February 2015 newsletter. Click here to subscribe to our monthly newsletter.

Most people will not spend a penny today to put a hurdle between their valuable assets and some currently unknown, but possible, future creditor*.  So what happens is people come to us when there is already a problem.  In those cases it is like trying to sell a fire insurance policy to someone whose home is already on fire: it just doesn't do any good.  (Transfers made once there is a problem are likely going to be viewed as "fraudulent transfers.)

California is not usually viewed as a debtor-friendly state, especially compared to Nevada.  However, in one respect California is one of the very best states for creditor protection planning.

A closely held business can adopt a private retirement plan ("PRP").  This is not a tax qualified retirement plan, meaning the deductions to a PRP are not deductible and the assets in the private retirement trust ("PRT") do not earn money on a tax deferred basis.  However, the PRP need not cover the rank and file employees (it can be completely discriminatory).  Also, the PRP can create a funding obligation for your retirement that is quite large.  The closely held business is unlikely to be able to fund that liability immediately.  As a result, the PRT trustee can put a lien on the business's assets as security to fund the retirement obligation.  That lien, if properly aged, can be a hurdle between the valuable assets of the business and some future plaintiff.  If the business lacks sufficient assets, you may be able to make a voluntary contribution.

This is a complex structure.  However, it has significant potential benefits in the right situations.  If you think this might be of benefit, please give us a call.

*The phrase `future creditor' is misleading.  You need not be sued to have a claim pending against you.  If you have signed a personal guaranty, it is already too late to do the planning.  If you have been in a car crash that was your fault, there is a `claim' so it may be too late to do the planning.

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