In parts 1 and 2 of our series on Private Retirement Plans in California, we explored the benefits and inner workings of a PRP including savings exempt from judgment, bankruptcy, and creditor attacks, as well as maintaining full control over your assets and receiving inherent tax benefits.
So how do you get started and set up a PRP or confirm that your existing PRP is set up correctly? At Trust-CFO™, our mission is to provide you with all the information you need about your PRP, ensuring that your plan is administrated correctly, securely, and legitimately.
The initial set up of a PRP consists of several steps to ensure the safety and legitimacy of your plan:
1. Choose an Administrator
While a true PRP is exempt from lawsuits and creditors, in the past, when a plan does not follow the requirements of forming a PRP, courts have allowed creditors to access funds in the trust. An experienced third-party administrator will handle all the details of planning and setting up a PRP for you.
2. Conduct an Analysis of Qualification and Asset Exemption
An initial analysis is conducted to determine if you qualify for a PRP in California. Factors considered include: your age, income, current retirement assets, whether you own a business, expected age of retirement, expected needs during retirement, and your current personal and business financial information.
At TRUST-CFO™, your administrator will collect and analyze this information and also analyze your assets to determine what can be contributed to your PRP. The administrator will then present their findings in an easy to understand diagnostic map that shows a before and after scenario to illustrate which of your assets are exemption qualified and which assets could qualify for exemption re-characterization.
3. Determine Future Funding Needs
Your administrator will assess your current assets and those you wish to contribute to your PRP to determine if there is a need for additional retirement savings by quantifying your income gap at retirement. Then, your administrator will calculate the future funding needed.
4. Document the Trust, Fund the Trust, and Appoint a Trustee
It is critical that your administrator draft a clear overall plan document and properly document your trust. Plan documentation is delivered to the plan trustee and all beneficiaries. Then, you must appoint a trustee and actually transfer assets into the trust. The trustee must be someone who is not under your control or related to you. Typically, your administrator will appoint an attorney-trustee for your plan.
5. Monitor and Review Trust Administration Annually
Your plan administrator will monitor compliance with legal requirements annually and modify the plan, as needed, to fit your changing retirement goals and financial environment. At the time of your retirement, your administrator will ensure that all benefits are properly paid out to all plan participants and beneficiaries, as scheduled, and report net balances remaining in the PRP.
A PRP is backed by the protection provided by exemption under statute to protect your financial future. As long as your plan contains all the necessary components of a retirement plan and is administered correctly, the safety of your assets is fully secured. But here are some of the top critical points and issues that must be adhered to in order to maintain your creditor exemption protection rights:
Where can I find more information about setting up a PRP?
Your best source frankly depends on what is being sought from the Plan. Unfortunately, most people learn about a PRP because they are in panic mode seeking asset protection from lawsuits. First, this is not the primary purpose of a Plan. While a PRP can have tertiary benefits such as asset protection, the primary purpose must be for retirement. Second, if you do have a potential but not yet filed litigation exposure, you should seek counsel with an accredited attorney to covet confidentiality/client privilege. However, one should know that many attorneys are not familiar with these Plans because many are not familiar with exemption law, let alone retirement planning in general. Most of the attorneys we have met can’t properly explain the difference between various ERISA qualified plans, IRAs, or Deferred Compensation programs. Accordingly, you should make sure an attorney is very familiar with the specific legal requirements of creating a qualifying PRP that will stand against creditors and lawsuits, based on legitimacy and proper administration support.
Fee-based advisors might also be a good resource for wealth management, as they may already be managing your investment portfolio and can help with an integrated approach that includes assets held in a PRP. However, not all financial advisors are experienced in the area of all federal and state creditor and tax exemptions, so an advisor should be interviewed to ensure their skill set matches the needs of your PRP.
The safety of your financial future is of the utmost importance to us here at TRUST-CFO™. We not only specialize in handling PRPs, but also provide you with all educational and informational materials you need to learn about your rights as a Californian to protect your financial future. We provide a comprehensive suite of services to help you reduce your risk associated with outdated or improperly administrated trusts and estate plans. You can rely on us to provide ongoing tracking and reporting to ensure you are fully protected.