California Exemption Planning

[Brian Bradley]

At the core of what I see any client wants when shopping for an asset protection system is a system that is effective, that gives them control, the cost are reasonable, and so is the annual maintenance.

Effectiveness for any asset protection systems means that the system must work and not invite an attorney to test it thinking they will get a payday. The best place to start when looking to protect yourself and your assets is with exemption planning. 

Exemption planning should be step one. And the reason you want to start with exemption planning is because an exemption is a right that you have under the Law. It’s automatically protected.

Now exemptions will very State by State so you are going to have to go and talk to your own lawyer to see what those are in your State.

I want to talk about one specific exemption that is available for California residents. Partly because California is a heavily populated state, with lots of investors, and is known for being a very non-asset protection friendly state.

For you California residents, the great thing is that you live in a great state that surprisingly is the only State to grant FULL exemption protection for any asset that qualifies for being placed in a Private Retirement Plan, or (PRP) Plan, that was codified under CA Code section 704.115 back in the 70s.

The great thing about using and starting with exemption planning is that once that asset is qualified as exempt, nothing crazy or elaborate needs to be done to protect it. Its exempt. And PRP plans are tax neutral, you can invest your assets in anything you want.

And for those investors who need to live off the cash flow, you can make a PRP Plan that creates distributions to meet that lifestyle. This is partly because these plans are not limited like ERISA or government regulated retirement plans. PRP Plans were actually created before Government Retirement Plans. It is a State regulated plan. What this means is that there is no 59.5 age limit for distributions. You set your own retirement age based of statistical metrics and analytics for funding the Plan. It is these actuarial statistical funding analysis that the courts require under In re Rucker, In re Crosby & Tarsada Hotel.

The other beautiful thing about PRP Exemption planning is that you can actually protect the future value of the assets. What this means is that you are protecting the real estate values that have not been earned yet. So what you are doing is taking an actuarially calculation, and it is these statistical calculations that prove the future funding need, and then you add that future amount into the plan.

A few good examples of an exemption are FL & TX homestead exemptions. For example in FL your home regardless of its value is absolutely protected from creditors so long as it is contained within 1/4th an acre. This is what an exemption is. An absolute legal right. Period. This is how OJ Simpson kept his FL mansion after a wrongful death claim was awarded against him. He lost everything, even his Heisman trophy, except his NFL Pension since it was Federally exempt, and his FL mansion since it was a State Exemption.

When you are looking at your options for a protection system, and you live in California, remember that you have the goose that lays the golden egg option with CCP 704.115. And it has been in existence for over 40 years, with over 40 years of supporting case law. Not many protection systems can say that.

When talking to a California Asset Protection firm, make sure to bring of this option, and compare it with the other options (LLC, DST, DAPT, PRP, etc) that are presented. Then match what you need with what you qualify for and your budget. Not everybody will qualify for a PRP Plan. The courts have need based funding metrics you must meet. But it is a great option to know about.

Some prior case history of PRP Plans for you due diligence. 

Tarsadia Hotel (2015)

In re Rucker (9th Cir 2009)

In re Crosby

In re Metz (9th Cir. 1998).

Dudley, 249 F.3d at 1176

In re Bloom, 839 F. 2d at 1379

In re Cutter (9th Cir 1999)

In re Moses (9th Cir 1999)