CLIENT ALERTS

Just Because You Live in California Doesn’t Mean Your Trust(s) Have To!

Dear Clients, Colleagues, and Friends,

Divorce Attorney Smith has a job to do, and it's not an easy one... breaking bad news never is.

Over lunch, Smith takes a deep breath, readying himself for the next half-hour of rage that is sure to come from his client Bill. The rage will be justified because the outcome certainly isn't.

Bill caught his soon-to-be ex-wife Laura having an affair with his best friend. Instead of remorse and apologies, Laura announced she was leaving Bill and taking him for everything he's got.

Because Laura enjoys a lifestyle that would make any wealthy retiree envious, including a full-time, live-in nanny and private school for their child, in large part because of the support trust Bill's parents established for him before their death. Smith was initially concerned that she could make a case for unusually high levels of spousal and child support due to the large income distributions from this Trust. But Bill believed the well-funded spendthrift trust would protect him against creditors -- including vindictive ex-spouses. Smith felt that the spendthrift provisions of the Trust would limit financial damage to Bill's bottom line.

But now, brand new California case law will make it easier than ever for Laura to get what she wants. It's Smith's job to deliver the bad news.

The law is an elastic thing, and the erosion of California's family trust protections stems from the State's public policy of ensuring child support payments. Probate Code Section 15305 provides that a trial court has discretion in ordering a Trustee to make payments for the benefit of a beneficiary, clarifying that this applies to support judgments "notwithstanding any contrary provisions in the trust instrument."

Then, Ventura County Dept. of Child Support Services v. Brown (2004) held that a trial court can order a trustee to satisfy child support judgments. The case also held that a spendthrift clause could not be used by a trustee to avoid child support judgment.

In 2016, yet another case expanded the court's discretion. In Pratt v. Ferguson (2016), Cynthia Vedder was beneficiary of a trust set up by her grandparents in which she was entitled to 1/6th of the total assets and income of the trust, which included a "shutdown clause" where distribution would "become inoperative" when subject to the beneficiary's creditors' claims.

Pratt and Vedder's divorce settlement included a $50k community property interest that Vedder failed to pay. By April 2014, Vedder owed Pratt over $93k, which included the community property interest and "unpaid child support and child care expenses." As a result, Pratt filed a petition for an order requiring the Trustee to pay child support and expenses, and to impose a judgment lien on Vedder's share of the trust estate to satisfy the community property judgment. The trial court denied this petition based on the shutdown clause in the original trust, and Pratt appealed.

Surprisingly, the appellate court reversed the trial court's decision, arguing that when creating Probate Code section 15305, the Legislature had the intent of ensuring the payment of child support obligations.

In applying Probate Code section 15303, and the precedent set in the Ventura case, the appellate court determined that the shutdown clause did not cover all distributions by the Trust nor to discretionary distributions from the principal for Vedder's needs. Only a spendthrift clause could apply to these types of income and principal distributions, but because the Ventura case established that a Trustee cannot use a spendthrift clause to avoid child support judgment, this opened the trust to invasion. Then, the appellate court held that the trial court ought to use its discretion to impose the judgment lien, citing Code of Civil Procedure section 709.010. Any amount that the Trustee pays to Vedder that is above the amount necessary for her education and support would be subject to the judgment lien. The appellate court ordered the trial court to compel the trustee Ferguson to make these distributions.

For California residents who have or who are considering establishing a trust for the support of children and grandchildren -- who want to protect them from a divorcing spouse laying claim to assets placed in the trust -- this recent case is very troubling.

As Smith explains to Bill how this new case law could affect his divorce, Bill's heart sinks into his stomach. He realizes his trust's assets could be up for grabs.

With Probate Code Section 15305, the California legislature overturned centuries of common law precedent, formally adopting public policy that trust assets held for the beneficiaries of a trust created by another (a non-self-settled trust) are not protected from child support obligations. These assets belonged to the trust creator, not the creator's beneficiary, and thus, the creator should be able to decide who gets and more importantly, "who doesn't get" access to the trust creator's assets. Therefore, this case now makes California just about the worst place to establish a non-self-settled spendthrift trust because it opens up the trust's assets for invasion.

Smith watches Bill process this information, his face getting redder by the second. Bill asks what California residents are supposed to do in such an impossible situation. Unfortunately, it's too late for Bill to do anything as his trust has been long-established by his parents, but that doesn't mean all California residents must suffer the same fate.

Just because you reside in California doesn't mean your trust has to. Its called "choice of law" or "forum shopping." Selecting a jurisdiction like Nevada or Alaska which have no "exception creditors"1 will give the creator of a trust far more peace of mind that their legacy can remain intact and protected when it comes to certain types of future unknown creditors, like child support creditors. Choosing the law of the proper situs of a trust is extremely important to its long-term protection, and an experienced asset protection and estate planning attorney can help guide such decisions.

If you have already established your trust in California and want to shore up the protections for your heirs' assets against unforeseen creditors -- including judgments for child support, give us a call.

 

1 Exception creditors would include child support in most states.

Exciting Developments at Jeffrey M. Verdon Law Group, LLP

Dear Clients, Colleagues, and Friends,

It is with great pride that we share our maiden article as an ongoing contributor to Kiplinger's Wealth Creation column. This piece, "Delaware Trust? You May Want to Consider Nevada Instead," deals with a court decision which shocked the trust & estates professional community because until now Delaware Trusts were considered virtually "bullet-proof." No one saw this coming. Congratulations to my good friend, Steve Oshins, Esq., being the first to shine light on this surprising development. Nevada appears to be the better domestic jurisdiction for support trust and asset protection trust planning. Click Here

Our upcoming Kiplinger column deals with a case involving Johnny Depp's lawsuit against his business manager and how he found himself in the unenviable position of having to sue him for $30M+. Stay tuned...

The firm continues to add quality professionals to its team. We are pleased to announce Dustin Nichols, Esq. has joined the firm as Of Counsel and in charge of the new Exemption Planning and Private Retirement Trust Division. Dustin Nichols is a distinguished faculty member and presenter for Lorman Education Services, a leading authority on exemption planning, complex estate planning, and integrated domestic and foreign asset protection planning. As a thought leader in comprehensive estate planning and asset protection planning, Dustin brings over 25 years of experience as an author and expert on the creation and implementation of Private Retirement Trusts ("PRTs") in the State of California. In fact, Dustin is one of the founders and inventors of California's administrative support service for the execution of California PRT. Dustin's book, "Asset Protection Strategies and Forms", is published by James Publishing. Click Here

Dustin's extensive experience in exemption planning will be available to aid our clients to be first in taking advantage of some of the unique and little known exemptions offered in CA, such as the Private Retirement Trust, the best protection that very few Californians have utilized or even heard of. Dustin will split his time between the Newport Beach and Redwood City offices.

We are also pleased to share the news that Ms. Jenny Wang, CPA, JD/LLM in taxation, will be joining our firm as a Senior Tax and Trusts & Estates Associate in April. Jenny earned her undergraduate degrees in Business Administration and Economics from University of California, Berkeley, and brings a wealth of experience in representing taxpayers before the IRS and Tax Court and international tax planning while at Grant Thornton. She was admitted to the CA bar in 2013. She will be working in the income tax planning, estate planning and asset protection group. Jenny also speaks two dialects of Chinese and will be assisting foreign nationals who seek to immigrate to the United States and perform the appropriate planning before seeking their green cards and other immigration status.

Delaware Dynasty and Asset Protection Trusts, A Paper Tiger?

Dear Clients, Colleagues, and Friends,

Sam built a fortune from furniture manufacturing. When he sold his successful business for a huge sum ten years ago, his one goal was to ensure his son would never have to struggle the same way he did - through a disastrous lawsuit and a financially ruinous divorce.

Sam established a Delaware Dynasty Trust (DDT) to protect his son against future creditors and potentially vengeful ex-wives. Trusting Delaware's reputation as a top-ranked U.S. trust jurisdiction, Sam believed the trust would ensure his son's long-term financial wellbeing. What he didn't count on was the 2014 Kloiber v. Kloiber case, which involved a long-standing exception to Delaware self-settled asset protection trust law exposing DDTs and Delaware Asset Protection Trusts (DAPTs) to penetration by ambitious and determined ex-spouses.

In 2002, Daniel Kloiber's father established a DDT. The trust was drafted as a "support trust" for the benefit of Daniel, his wife and his descendants, and over the years accumulated roughly $310 million in assets. When son, Daniel divorced in 2014, his ex-wife demanded a piece of this trust using precedent set in the 1973 Garretson v. Garretson case. Garreston established that divorcing spouses can invade support trusts because a divorcing spouse seeking maintenance from her ex is considered an" exception creditor" under Delaware law. Spendthrift language like the so-called HEMS standard for health, education, maintenance and support exposed the Kloiber DDT's assets to Daniel's divorcing spouse rather than protecting against it. Under this precedent, the original DDT's assets were severed to create a new trust for his ex, rendering the protections afforded by vaunted Delaware Trust law feckless.

This is Delaware law's dirty little secret, and it's a hole a Mack truck could drive through. Dangerously, this is an exception about which most trustors are unaware.

So Sam has a problem. He created a DDT drafted as a "support trust" for the benefit of his son, and his son's wife (as long as they remained married) and his descendants in Delaware. He now knows that the language used in the trust can be penetrated by a future ex-wife. What can Sam do to fix it?

Nevada trust experts advise the safest way to create a dynasty trust is to draft it as a discretionary trust in a no-exception creditor state like Nevada, in which only the trustees have the sole authority to distribute trust income and corpus to beneficiaries. Unlike Delaware, Nevada does not have an "exception creditor" exemption for alimony and child support claims. So, although Sam already established a DDT for the benefit of his son, his trustee may relocate the entire trust to Nevada for superior protection, eliminating the ex-spouse creditor exception under Delaware trust law.

Sam does this and rests easy knowing that whatever challenges his son faces throughout life, fighting for the assets in his trust against a vengeful ex-spouse will not be one of them.

If you have already established a domestic DDT or DAPT, check with your trust expert to determine if it can be penetrated by an exception creditor. If so, consider redomiciling your trust to Nevada for greater protection.

For more information about DDT and DAPT's or other issues pertaining to this subject, contact the Jeffrey M. Verdon Law Group, LLP, Jeff@jmvlaw.com, (949) 333-8150.

The Fusion of Planning and Protection for the New Year

Dear Clients, Colleagues, and Friends,

If you are like most of us, the end of the year means a time for reflection on happenings from 2016 and looking forward to what we can do to make 2017 a great New Year.

2016 has been an interesting year at the Jeffrey M. Verdon Law Group, LLP. The historic Presidential election promises major tax reform, including a 15% business tax rate and lower personal income tax rates, fewer business regulations and less red tape for business startups and expansion resulting in more commerce, new rules by the IRS to eliminate one of the oldest and commonly used traditional wealth transfer techniques involving discounts for intra-family transfers, replacement of the death tax with a Canadian style capital gains rate income tax at death, and the continuing increase in crippling civil litigation arising from overzealous plaintiff lawyers trying to get in on the litigation lottery. In response, we have introduced interesting new programs and strategies, special trusts, and other options for our clients in both Advanced Estate Planning and in vehicles to protect their assets and family legacies. In 2017, once the new tax laws are passed, we will be reporting these changes and what can be done to take advantage of them for our loyal readers. Stay tuned...

Some of our newest planning strategies include the Private Retirement Plan and a renewed interest in capturing valuation discounts through our HYCET Trust® (Have Your Cake and Eat it Too), or flexible gift trust, due to an IRS ruling which might expire in the first quarter of 2017.

We have some changes taking place beginning in the new year. Starting in January 2017, Jeffrey Verdon will become an ongoing contributing advisor for Kiplinger's Wealth Creation columns. In addition, our new Silicon Valley office is starting to get traction and we look forward to a brisk year in the Valley. Presently, we are just one of a very few law firms in Silicon Valley that provides comprehensive estate planning solutions with asset protection and look for this to expand in 2017.

2017 will bring some changes to our team members. Our clients have come to know and enjoy working with our tax associate, Lindzey Cain, (formerly Lindzey Schindler before her marriage this summer to Anson Cain) who has done such a splendid job working closely with me and whom our clients have come to depend on for her skills and superb client service. Lindzey will be leaving the firm at the end of this year to pursue another opportunity in the estate and trust field and we wish her the best for what we know will be a wonderful future.

We continue to expand our tax team with two wonderful new additions. Deborah Ahdoot, Esq., a tax and trusts lawyer, who earned her LL.M. (taxation) from Boston University in 2013 and brings the firm a solid background in income and estate tax planning for individuals and businesses. Deborah is excited about joining the firm telling us she will help build on all of the good work from dedicated people like Lindzey.

We also welcome Nancy Berg, Senior Paralegal, who joins us with over 25 years of outstanding experience rounding out our team as she supports our attorneys and clients. Nancy commented, "I look forward to using my years of experience as an estate planning paralegal and being an integral part of this exciting team."

As 2017 approaches we will be prepared to stay abreast of new changes in rules, regulations, and laws as the new administration settles in starting in January. We will be providing regular updates so our clients and colleagues can protect their estate plans, assets, and families with the most current information that might impact their estates going forward.

We wish everyone a wonderful holiday and a happy and healthy New Year.

Treasury Department’s Tax Lawyer Reports: “It’s Not Over Til It’s Over…”

Dear Clients, Colleagues, and Friends,

On August 4, 2016, the IRS issued proposed regulations under IRC Sec. 2704 designed to eliminate a commonly used and effective wealth transfer strategy to produce "discounts" in value for lack of marketability and lack of control when making transfers of closely held entity interests via gift or by one's will or living trust. These discounts can range from 25% to 50% or more depending on the nature of the entity, the capital structure of the entity and the underlying assets of the entity being valued. Once the proposed regulations become final, these "discounts" for most taxpayers will be gone forever. While no one knows precisely when the proposed regulations will become final, it was expected after being posted and then time for public comment the regulations would be final by the end of 2016 or Q1 2017.

Prof. Jerry Hesch, Special Tax Counsel to the law firm and Director of the Notre Dame Tax and Estate Planning Institute, just concluded the Institute's fall tax conference and reports that one of his luncheon speakers, Cathy Hughes, a tax lawyer in the Treasury Department's Office of Tax Policy, spoke about the status of these regulations. On October 28, Ms. Hughes told her audience, "There is a zero chance of the regulations being issued in January."

This is good news for you procrastinators! Therefore, for those readers of Client Alert, there is still time to get your planning completed to take advantage of this exceptional wealth transfer opportunity before it goes away forever.

Many of our clients are capturing these discounts through our HYCET Trust® (Have Your Cake and Eat it Too), or flexible gift trust. Under conventional gift planning, a gift of assets to an irrevocable dynasty trust precludes the donor from reclaiming the transfer if he later needs or wants it back. The HYCET Trust, relying on IRS favorable Private Letter Rulings, is the trust designed for these circumstances. Established in a state that allows the trustee to later add the creator of the trust as a discretionary beneficiary, the HYCET Trust provides the platform to later reclaim the gift, providing flexibility should future circumstances change. The HYCET Trust with its flexible trust provisions will allow the taxpayer to capture the discounts on the value of the transferred assets, while retaining the flexibility of reclaiming the gifted asset -- and it is all legal. For further information on the HYCET Trust, view the short video on the HYCET Trust: click here.

The Proposed Tax Regulations to Stop Discounting Under IRC Sec. 2704 — What You Should Do and Do Now!

Dear Clients, Colleagues, and Friends,

We write to inform you that the Treasury (IRS) just issued Proposed Regulations that could have a dramatic impact on your estate planning by eliminating valuation discounts. For wealthy people looking to minimize their future estate tax, this is critical. It can also be essential for others as well. If you are concerned about protecting a family business from the risks of future divorce, or protecting your assets from lawsuits or malpractice claims, discounts can enable you to leverage the maximum amount of assets out of harm's way, without triggering a gift tax in doing so.

What are Discounts, Anyway?: Here's a simple illustration of discounts. Jim has a $20M estate which includes a $10M family business. He gifts 40% of the business to a trust so the future appreciation of the gifted asset grows outside of his taxable estate. The gross value of the 40% business interest is $4M. Since a minority 40% trust/shareholder cannot force a sale or redemption of its interest, the non-controlling interest in the business transferred to the trust is worth less than the pro-rata value of the underlying business. Thus, the value

should be reduced to reflect the difficulty of marketing the non- controlling interest in the event of a future sale. As a result, the value of the 40% business interest transferred to the trust might be appraised, net of discounts, at $2.4M. The discount has reduced the estate by $1.6M from this one simple transaction.

Election Impact: If the Democrats win the White House and the Democratic estate tax proposals are enacted, the results will be devastating to wealth transfer planning. Pundits have prognosticated that a Democratic White House could affect down-ballot races and flip the Senate to the Democrats. The Democratic tax plan includes the reduction of the estate tax exemption to $3.5M from its current $5.45M; elimination of inflation adjustments to the exemption; a $1M gift tax exemption; and a 45% estate tax rate. The Democratic plan will most likely include the array of proposals included in President Obama's Greenbook, which seek to restrict or eliminate GRATs, note sale transactions to grantor trusts, and more.

Wealthy taxpayers who do not seize what might be the last opportunity to capture discount planning, might lose much more than just the discounts. They might lose many of the most valuable planning options currently available.

Not a 2012 "Boy Who Cried Wolf": Many of you might remember the mad rush to plan in late 2012 on the fear that the gift, estate, and generation skipping transfer (GST) tax exemption might be reduced from $5M to $1M in 2013. After many incurred significant costs and hassles in implementing planning quickly, that change never occurred. For those who might be affected by discounts, the situation in 2016 seems vastly different. The Proposed Regulations could be changed and theoretically even derailed before they become effective. However, the more likely scenario is that they will be finalized after public hearings, and the ability to claim valuation discounts will be severely curtailed.

If you do undertake planning, be cognizant of an important lesson from much of the poor planning that was done in 2012. Consider using planning techniques that assure you (or if you are married, you and your spouse) access to funds transferred in the discount planning. The main

regrets in 2012 planning were for those who transferred assets out of their own reach. With the right planning techniques, that really is not necessary to achieve the desired goals.

Act Now: Time is of the essence. Once the Proposed Regulations go into effect, which could be as early as year-end, the ability to claim discounts might be substantially reduced or eliminated, thus curtailing your tax and asset protection planning flexibility.

What You Should Do: Contact Susan Jerome, susan@jmvlaw.com, to schedule an appointment with our office. As your estate planning attorney, we will review the strategic wealth transfer options that will maximize your benefit from discounts while still meeting your other planning objectives.

Jeffrey Verdon, Esq. Speaking at SCCBA (also webcast) “What Every Lawyer Needs to Know About Their Own Asset Protection Planning and Strategies”

Dear Clients, Colleagues, and Friends,

We are pleased to announce that Jeffrey M. Verdon, Esq., Managing Partner of the Jeffrey M. Verdon Law Group, LLP, with over 30 years of experience in the area of comprehensive estate planning with asset protection planning, will be the luncheon speaker at the Estate Planning Section of the Santa Clara County Bar Association on August 29, 2016, 12-2pm, on the topic “What Every Lawyer Needs to Know About Their Own Asset Protection Planning and Strategies”.

Estate planning lawyers have continuing liability for their acts of negligence and those whom they supervise for up to one year following the death of their client. Moreover, the estate planning attorney can be liable to a class of plaintiffs beyond those of their immediate clients. This can expose the practitioner, and those whom they supervise, to unforeseen malpractice claims far in excess of the limits of their malpractice policies — and well into their retirement years!

What you will learn:

• proper due diligence and ethical considerations for your practice area

• a review of some of the more “effective” asset protection strategies lawyers may employ to protect themselves and their clients against unforeseen future liability claims, including but not limited to the foreign asset protection trust, the Private

Retirement PlanTM and the HYCET Trust®.

This presentation is open to non-members of the SCCBA and will be simultaneously webcast, also open to non-members of the SCCBA. California MCLE credit for 2.0 hours, general substantive law.

For registration information, please click here.

Protecting Your Blind Side

Dear Clients, Colleagues, and Friends,

“White-eighty, white-eighty, hut!”

A crisp snap slams the ball firmly into Carolina Panther Cam Newton’s hands, and he drops back into the pocket, searching for his receiver as defensive linemen bear down. He hears a loud crunch – the sound of two bodies colliding. Cam smiles, knowing that his left tackle Michael Oher is protecting his blind side, giving him precious extra seconds. Cam cocks his arm, launching a bullet into the end zone. Touchdown!

Every great quarterback has a talented left tackle protecting their “blind side.” Who is protecting yours?

If you own a business, are married, or have an estate you care to pass onto your heirs – and you haven’t installed an asset protection plan – you are risking everything.

Take Samantha, for example. As the second generation of a successful family-owned business, she looks forward to a comfortable retirement. But last year, her company manufactured a defective product that could be the direct cause of dozens of fatalities. Between lawsuits and a massive product recall, her suddenly once-thriving business quickly becomes bankrupt, leaving Samantha on the verge of retirement with nothing to her name. If she had been aware of just a few of the many ways to protect some of her assets, her personal financial situation would not have been so dire.

She is not alone. Many hard working Americans find out far too late that financial ruin could have been avoided had their trusted advisors so informed them.

Like the left tackle on an NFL team, an asset protection lawyer’s job is to protect you from what you can’t see coming – to protect your blind side.

Lawyers ask a lot of “what ifs,” and in Samantha’s case, a lawyer might have warned her ahead of time that insurance can be woefully insufficient in product liability cases, and that other forms of advanced planning can lawfully keep judgement creditors from reaching your hard-earned assets during such financial and legal disasters. Moreover, a skilled asset protection lawyer would have evaluated her risks and recommended legal, effective, and proven asset protection vehicles designed to reach an early and modest financial settlement.

What are some of these planning vehicles? California businesses and their owners can take advantage of one of the most protective structures very few professionals have heard of – a Private Retirement Trust™ (PRT), which fully exempts assets held in the Trust from creditors, as well as subsequent distributions paid to the owner at retirement – whether from lawsuits or bankruptcy. Properly administered, Samantha’s assets would have been protected as her business imploded. Another proven “firewall” is the foreign asset protection trust (FAPT) to hold her cash and other liquid assets and personal investments. FAPTs use the more protective laws in wellestablished foreign countries that won’t allow U.S. judgments to be satisfied against the assets of the FAPT, even if Samantha is one of the FAPT’s beneficiaries. As protective trusts are irrevocable, if Samantha had moved her assets into an irrevocable trust and later needed or wanted to reclaim them, she could have used the HYCET Trust®, which allows remorseful clients to “have your cake and eat it too” by reclaiming gifted assets, again, sanctioned by the IRS (See PLR200944002).

These are just three examples of the many different methods that skilled asset protection lawyers use to protect their most valuable players (their clients) against unforeseen lawsuits, creditors, estate tax burdens in estate planning, and the risks of exposing their separate property in a contentious divorce. They are vehicles that could have saved Samantha from having to start over.

Like a good left tackle, an asset protection lawyer will always protect your blind side. If yours is exposed, we would like to speak to you.

Have You Heard? We’ve Expanded to Silicon Valley

We are pleased to announce the opening of our new Silicon Valley office.  Our comprehensive estate planning with asset protection legal services will now be available to successful business owners and technology entrepreneurs to protect their assets and lifestyle, using proven strategies for tax and asset protection planning.

333 Twin Dolphin Drive, Suite 220
Redwood City, CA 94064
949-333-8150

1201 Dove Street, Suite 400
Newport Beach, CA 92660
949-333-8150

 

 

California is #1: And That’s Not a Good Thing…

 

Dear Clients, Colleagues, and Friends,

Harold spent the better part of his life building a profitable business, but one bad day led to a lawsuit that wouldn’t quit, and suddenly his years of hard work evaporated with the loss of his business…and his retirement.

To Harold, it’s no surprise that the National Federation of Independent Businesses (NFIB) declared California the #1 judicial hellhole in the United States for the 3rd year running.

That’s bad news for California businesses.

Common strategies to counter litigation risk are available but, like increased casualty insurance which often incentivizes greedy plaintiffs, many have a double-edged sword. For example, estate planning techniques that irrevocably transfer or gift away assets via trusts mean losing control of hard-earned assets. And offshore trusts, which work extraordinarily well as lawsuit shields, come with their own set of problems in the face of the Foreign Account Tax Compliance Act (FATCA). Many offshore banks and brokerage firms refuse to accept these types of deposits from U.S. beneficiaries, making their use impractical for only the most sophisticated client. So other than moving to another state, what is a business owner to do?

DON’T DESPAIR!

The highest form of creditor protection offered by a state is their exemption laws.1 A specific California exemption statute2 offers CA residents the ability to place effective litigation protection around private assets for full exemption from creditors – both in lawsuit and bankruptcy – via a Private Retirement TrustSM (PRT).

How Private Retirement Trusts Work.

This form of business asset protection works differently from certain qualified retirement plans (non-ERISA qualified Plans and IRAs) which have more prohibitive transaction rules. A properly structured PRT can hold private business stock and assets including retained earnings, accounts receivables and other contract agreements, and also allows for the funding of private investment assets on an owner’s personal balance sheet, including private equity, real estate, and even promissory notes or loans. Unlike irrevocable trusts that transfer asset interests to others, the PRT’s owner-participant is its beneficiary and receives full beneficial interest from plan proceeds. Because the PRT is non-qualified, there are no funding limitations or penalties, and there is no requirement to include other participants if not desired.

A PRT must be administrated by an independent 3rd party trustee. With proper administration, distributions at retirement retain full asset protection even when paid out. Although potential fraudulent conveyance claims can be a concern with any trust, the key is to respect current commitments. Moreover, because the PRT is created under an exemption statute, late term planning is tolerated provided the primary objective of the PRT is retirement. Reviewing CCRs (conditions, covenants & restrictions) in your banking agreements, including the assignment, funding or title of assets, and honoring your carrier’s bonding & surety covenants, will help turn your bank or carrier into your biggest advocate as they gain friendly lien positions.

As Harold discovered, using California’s state exemption strategically can lead to wavy legal oceans, so using a professional with knowledge and expertise in the area of exemption asset protection planning is a must. A skilled attorney and trusted administrator are a powerful advisory combination to help assure that plan design offers maximum defense and empowers clients to meet their ongoing capital, cash flow, and business planning needs.

For more information about how a PRT can benefit you, contact Jeffrey M. Verdon, Esq. at jeff@jmvlaw.com, or call 949-333-8152 to schedule a free telephone consultation to see if you are a candidate for the PRT.


¹ Exemption laws are enacted by legislatures to give debtors a fresh start.

² CCP 704.115