“Exempting” Your Business for a Private Retirement – for Owners & CEOs Most successful business owners say that their business is their retirement plan, but they don’t ever claim their tax or creditor exemption rights to secure the protection, profit and preservation benefits offered by such plans. Protecting Business can be done!!
Private Retirement Plans – an Irrefutable Creditor Exemption under California State Law- Protect Business
In 1970, California instituted state law (California Code of Civil Procedure 704.115) to allow its residents to fund their private assets, including private business interests, to a private retirement plan and “exempt” all funds, distributions and death benefits from both bankruptcy and nonbankruptcy creditor attachment. This law is still in effect today unchanged, but very few use it until it’s too late and they are sued and then it’s too late, the right is forfeited.
1. They can consider it a personal use asset in which it has no exemption from creditors and if they get sued they can lose it and start over, or
2. They can “recharacterize” their business as for “retirement”, in which case it is exempt from creditors both while they build it and even after they sell it and live off the proceeds.
A properly constructed Private Retirement Plan empowers an Owner & CEO to receive a multitude of benefits and values without disrupting their wealth-building strategy:
• True Asset Protection: all plan funds, distributions and death benefits are fully exempt from bankruptcy and non-bankruptcy (lawsuit) creditors, offering a safe-haven for better planning.
• Self-Directed: there is no need to change your asset structure. You simply “exempt” assets legitimate for your retirement plan. You invest as you are and build wealth the way you want.
• Pro-Business: an Owner and/or CEO can build a successful business the way they want and not disrupt any equity, balance sheet, cash flows, or financial obligations with financial partners.
• Accelerated Asset Protection: because a funded business has future profits, a PRP leverages its future profit stream against present value of business equity, thereby accelerating current day asset protection values. There is roughly a 10x multiple on asset value to dollar funded.
Contributions are not tax deductible as the assets funded already have inherent tax benefits, deductions, credits and exemptions. It is intentionally tax-neutral to avoid negative tax triggers such as cap gains conversion to ordinary income, and property reassessment.
• LOC recapture: by using its exemptions and continued funding to a productive business, a PRP actually improves cash flows and enhances long-term values.
• Greater Values – Greater Benefits: upon business or asset sale, all funds convert into exempt benefits for a greater net lifestyle at retirement.
• Enhanced Perpetuation Planning: since the PRP is exempt it can better facilitate buyout arrangements, continuation plans, or asset transfer plans to heirs, by protecting all parties from outside creditor involvement.
• Low Costs: a PRP is easy to setup because there’s nothing to buy or sell. It’s just the process of exempting your assets. Fees are fixed and transparent to provide the greatest planning value at the lowest net cost compared to all other planning.
In conclusion, while the PRP is not a cure-all for all business struggles, it is a legal right that each Californian business owner can claim so they can create a safer environment in which to tackle other planning issues and needs.
• When would you benefit from a PRP? If you have a growing business and before any litigation.
• When would you forfeit your right? After you’ve been sued and lost your assets.
Call TRUST-CFO<sup>sm</sup> to get your personal Exemption Diagnostic to learn what assets are exposed and why, and which can be exempt and protected, and how.