As with any strategic planning where you try to keep your money from outside interests, planning can become overly aggressive, whether driven by an advisor or a client that takes good advice and bastardizes it on their own. These abuses are arsenal for attackers who can then claim that the planning was done for ulterior motives, and not for the true intent of the planning for which it was established.
A “plan” usually succeeds when it was found to honor the primary purpose of planning (“good case law”). The failure of a “plan” is usually determined by a fact pattern in which a plan was used as a shelter to hide funds from the grasp of unwanted creditors, but was not able to otherwise prove a true need, i.e. “bad case law or not appropriate”. However, one should note that there is a gray area. Even where it may be that a debtor had good intent, their plan may fail because they could not prove legitimacy due to lack of documentation or administration support. This error leaves the final decision to a judge and will likely end with you as the loser.
The protocol of “intent” is particularly acute with the implementation of a Private Retirement Plan because it’s tertiary wealth preservation benefits are so potent. Many times attackers will try to use lack of intent as a reason to unwind a plan and stake their claim. However, unlike most planning that requires a debtor to prove intent, a PRP falls under exemption law, which dictates it’s up to a creditor to prove “lack of intent.” So a PRP participant at least has a leg up if they can truly legitimize their retirement planning purpose.
True and primary intent of a Private Retirement Plan is to make up an existing retirement savings shortfall by funding private assets to a private plan. In order to legitimately resolve an income gap and reduced lifestyle at retirement a PRP can be used to fill that retirement gap.
First, a Private Retirement Plan is supported under California statute CCP (Code of Civil Procedure) 704.115. An attacking creditor’s attorney won’t be able to challenge the legitimacy of the law. Instead they will be left with trying to attack its planning intent. Second, it has been determined under both federal and state case law that “retirement must be the primary, but not exclusive, purpose of the plan”. So as long as retirement is the overriding purpose for the “Plan”, the receipt of other benefits is acknowledged as contingent and purposeful.
Basically, the answer is if the primary purpose is NOT for retirement, and usually includes one of these two scenarios:
After review of all good and bad case law we have determined a path of success to both honor the true intent of a PRP and avoid the trappings of failed plans. Here are the required components to ensure proper Plan design and assure maximum Plan defense:
Each one of these steps is critical to the validation process and finely tuned into a patent-pending system to ensure maximum performance and avoid any abuses. Any modification of these steps will leave a PRP Plan weaker if and when tested.
Unfortunately, most attorneys are geared toward legal defense (asset protection) strategies and do not understand the intricacies of retirement or exemption planning. They have a tendency to put the cart before the horse and play the “asset protection” card first. We have worked diligently to help educate our PRP Attorney Subscribers to understand that a Diagnostic exemption planning review will help start the conversation with private retirement as the goal, and asset protection is simply one of the many benefits and results of a legitimate Private Retirement Plan.