California Private Retirement Trust (PST) and Asset Protection

Tax, SDIRAs & Cost Segregation
7yFollow

California Private Retirement Trust (PST) and Asset Protection

Brian Bradley
Attorney · Wilsonville, OR · Member since 2017 · 504 posts · 411 votes

If you are a CA resident on searching about Asset Protection you might have read some of my other forum post on DST and its benefits for CA Investors. Another option for CA investors is the Private Retirement Plan/Trust (PRT) which provides one of the highest levels of protection for your assets. With our litigious and predatory society there are few purely domestic asset protection planning strategies that offer California residents true asset protection. The great thing is that being a California resident, you have an additional option that is not well known but exclusive for CA Residents; the Private Retirement Trust (PRT).

A PRT is a retirement plan that FULLY EXEMPTS ALL trust assets from any creditor attached so long as it’s designated for future use in retirement. In 1970 California instituted its’ state exemption law that assets owned in a private retirement trust are fully exempt under statute. PRTs are specifically designed to enforce your legal exemption right to protect assets from lawsuits and attacks.

Aretax-oriented plans like IRAs seek tax deductions for contributions. PRT instead prioritize and protect private assets that already have inherent tax benefits. Instead of seeking sources of income or assets that can be used for tax deductions like IRAs, you can contribute to your PRT as they are earned with little to no restrictions on the amount. Since funds and assets are only allocated to a PRT after they have been taxed, contributions are not deductible, therefore any private or appreciating asset can be put into a PRT without limits.  If you can’t save up enough money for a traditional retirement plan or if you would like to maintain control of your assets and save for retirement on your own terms, a PRT might be for you.
Tomorrow we will get into how a PRT is different from other retirement plans and how to fund it. I plan to break the PRT down into 3 or 4 posts since their is a lot of information. If I don't get to many of the questions, it is because I want to get all the post out first, which might address the question. 
0Reply
54 views

8 Replies

Jump to latestLatest
  • Christopher Smith
    Investor · brentwood, CA · Member since 2016 · 1k+ posts · 730 votes
    7y

    Is a PRT regarded as a seperate legal entity under Federal/State law? If so is it specifically taxed as a trust under Federal/State tax law?

    0Reply
  • Brian Bradley
    OP
    Attorney · Wilsonville, OR · Member since 2017 · 504 posts · 411 votes
    7y

    @Christopher Smith good question. 

    Under California state statute (law) CCP 704.115, assets held in a Private Retirement Trust plan are exempt from creditor lawsuits and bankruptcy judgments, as long as designated specifically for retirement.

    No Annual IRS Filings: Yet another advantage of a taking up a PRP is that there is no need for annual Internal Revenue Service filings (IRS).

    Contributions are only made after they are taxed which results in a great degree of freedom for the types of funds that can be allocated in addition to very few restrictions on funding amounts. Funds and contributions to your PRT are primarily going to be in the form of private assets that are taxed as they are earned; the only difference between private assets and funds contained in a PRT is that those funds are allocated specifically for use in retirement. contributions are not tax deductible because the assets being allocated for retirement have already been taxed. Though they are not tax deductible, contributions retain their full character once contributed to your PRT so the inherent tax benefits in each asset are preserved for your benefit during retirement.

    0Reply
  • Christopher Smith
    Investor · brentwood, CA · Member since 2016 · 1k+ posts · 730 votes
    7y

    Sounds like a grantor trust arrangement. Would be really nice if I could transfer lock, stock and barrel multiple existing rental properties into such a trust, but somehow that sounds way to easy.

    0Reply
  • Brian Bradley
    OP
    Attorney · Wilsonville, OR · Member since 2017 · 504 posts · 411 votes
    7y

    @Christopher Smith Funding a PRT is unrestricted as long as assets can be justified and proven as needed for retirement, and can include private business interests, stock, and notes, if properly administrated. There is no restriction on the type of investments that you can cover in the plan. Thus, a large variety of assets particularly rental properties for retirement purposes. Additionally, you can put these investments into any financial institution of your desire as well. Obviously any system involves a detailed analysis of your situation and assets so a consult would be necessary. But overall, the PRT is a very good wealth generator and asset protection system exclusively for CA residents. 

    0Reply
  • Brian Bradley
    OP
    Attorney · Wilsonville, OR · Member since 2017 · 504 posts · 411 votes
    7y

    Very exciting. I’m gonna be teaching a national CLE seminar “continuing legal education” for attorneys on asset protection for the national academy of CLE.

    0Reply
  • Brian Bradley
    OP
    Attorney · Wilsonville, OR · Member since 2017 · 504 posts · 411 votes
    7y

    For CA residents, or for any person looking for asset protection, we have talked about no one size fits all system exists. Asset Protection systems are all personal. Another issue is that most ‘asset protection' attorneys are estate planning attorney's and work on exempting assets from estate tax and avoiding probate, which has nothing to do with asset protection from creditors and lawsuits. Or they stick with what they are familiar with and try to fit everybody into one system (LLC / Land trust).

    Most asset protection planning is limited, especially in CA where courts have pierced the veil of LLCs set up for asset protection and pierced the veil. If you are living in CA, you are living in a judicial hellhole that ranked #1 by NFIB. If your protection is "limited" as the tile implies with LLC, and CA is horrible state for litigation and taxes, and judges give very little respect to elaborate asset protection schemes to protect debtors (you), what option do you have? I personally would look first towards State Exemptions and what assets I can exempt, then, after I have maxed out my exemption options with my assets, I would then look at what additional asset protection system I need to set up to protect the rest.

    An exemption is a legal right under Federal or State Law to have certain assets unavailable to creditors under any circumstances. This is NOT an asset transfer, therefore cannot be fraudulent or voidable. The interesting thing is, despite how bad of a state CA is for asset protection and taxes, it actually has VERY strong and unique asset protection opportunities via its State Exemptions for Personal Retirement Plans found under California Civil Code 704.115. When you actually compare these exemptions to the other States that are considered the strongest, (TX, NV, FL).

    Under CCCP section 704.115 no other state have a unlimited state exemption for private retirement plans such as CA. In fact, the federal retirement law ERISA was modeled after it and has been around and tested in court for many years.

    Yes it is hard to believe. Despite having horrible, if not the worst, climate for taxes and litigation, there is actually something CA offers its residents for protection that can convince small, midsized business owners and investors to stay in CA and not move out of the state.

    By having an experienced lawyer familiar with PRP or PRTs (interchangeably used) to properly draft and maintain a CA Private Retirement Plan (PRP) you can protect your assets via exemption. And not the limited protection under a charging order. The surprising fact also is that CA is the ONLY state with an exempt private retirement plan (PRP).

    The point is, when talking about or considering an asset protection system, the smartest and wealthiest clients 1. Have insurance, 2. Pick up all their state and federal exemption they are entitled to, and 3. Then set up some asset protection entities they need to cover the rest, be it offshore foreign asset protection trusts, DSTs, or LLCs, LP, S-Corps, Etc. It is then a matter of assessing the remaining non exempt assets with protection needs and tax planning. 

    0Reply
  • Diane Tycangco
    Member since 2019 · 120 posts · 26 votes
    3y

    Hi Brian, i think the Private Asset Retirement Trust is what I have been looking for!  I am a California resident but am planning to sell my California rentals and buying out of state rentals.  If I have the California Private Retirement Trust, can I buy and sell real estate any time I want?  Can I do 1031 exchanges with assets in the trust?  Can I get distributions from the trust even if I am not retired or partially retired?  Is there a limit as to the amount and frequency of distribution and can a creditor grab your distribution from you? Does it have charging order protection? 

    Thank you!

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free