I. Introduction:
California not only has a reputation for great weather, beautiful beaches, and geological wonders, but also for being a hot bed for litigation. In fact, California is ranked in the top three “Judicial Hellholes” in the United States by the American Tort Reform Foundation. Unfortunately, traditional asset protection strategies and techniques have become frowned upon by California judges, making it more difficult to truly protect and preserve retirement wealth.
The recent passage of AB5, Proposition 65 lawsuits, Private Attorney General Act (PAGA) claims, wage and hour litigation, minority shareholder lawsuits and creditor-friendly collection laws are just a few reasons California has been ordained with this less-than-prestigious distinction. Fortunately, California residents possess a choice of potential state and federal creditor exemption laws to help truly safeguard assets from exposure to money judgments. One potent, yet misunderstood, creditor exemption statute protects a Californian’s private retirement assets (assets that will be looked to provide a comfortable retirement lifestyle) from money judgments. This statute is commonly referred to as the “Private Retirement Plan Statute.” Its’ superior protection benefits can be captured by using a “Private Retirement Trust” or “PRT.”
II. The PRT and the Private Retirement Plan Exemption:
California Code of Civil Procedure Section 704.115(b) provides that “[a]ll amounts held, controlled, or in the process of distribution by a Private Retirement Plan, for the payment of benefits, as an annuity, pension, retirement allowance, disability payment, or death benefit from a Private Retirement Plan are exempt” from creditors and money judgments. Properly identified retirement assets are funded into and administered pursuant to a PRT. Unlike traditional retirement accounts such as IRAs, PRTs are exempt from money judgements and bankruptcy assuming they are designed and used primarily for retirement purposes.
III. Key Benefits:
1. Superior Protection for Retirement Assets. “Can’t lose” retirement assets identified necessary to sustain/maintain lifestyle at retirement are protected against money judgments and bankruptcy. There is no proscribed limit to the amount that can be funded into a PRT. Rather, the only limit is the amount necessary to support a participants post-retirement lifestyle through the end of his/her life.
2. Attractive Funding Options. PRTs can be funded with many types of cash-flowing assets, including, but not limited to, cash, marketable securities and stocks, real estate, private limited liability company interests and cash value life insurance.
3. Can Strengthen other Planning. Integrating a PRT with other existing entity and estate planning can bolster existing protection planning. For example, a husband and wife limited liability company owning commercial or residential real estate can be foreclosed upon by a creditor should husband and/or wife be subject to a money judgement due to its “single member” status under the California LLC Statute. In contrast, contributing non-voting limited liability company interests to a PRT will create a “multi-member LLC” with “charging order protection,” reducing or illuminating the ability for a creditor to try and take the underlying LLC asset.
4. Tailored Investment Strategies. PRTs can be designed/structured to meet specific investment goals. Participants can tailor/balance investment strategy with risk tolerance.
5. Potential Tax Benefits. The PRT is a “Grantor Trust” under the Internal Revenue Code. This means PRTs can be structured in ways to optimize tax efficiency in accordance with a Participants individual facts and circumstances.
IV. Conclusion:
Retirement Exemption Planning for California residents using a PRP and PRT is superior to traditional asset protection planning using offshore or domestic strategies and structures. The potent exemption protection afforded by a PRT may be utilized by both U.S. and non-U.S. citizens residing in California.
If you would like to discuss this further, please contact me at 818-342-9950 or email me at
Barry.boscoe@brightonadvisory.com You may also use my calendar link below to set a time that works best for you.