The First Challenge
Protecting qualified retirement plans has always been a challenge for Asset Protection Planners. First of all, in many cases, these assets are already well protected. For example, assets placed in plans authorized by the Employee Retirement and Security Act of 1974 (“ERISA”) have clear Supreme Court protection. In Patterson v. Shumate, 504 U.S. 753, 112 S. Ct. 2242, 119 L. Ed. 2d 519 (1992) the highest court of the land confirmed that “anti-alienation” as applied in ERISA creates enforceable restrictions against even the rights of creditors. This is great if your plan assets are in an ERISA plan. However, if you ever have to roll them out, or they are in one of the several other types of plans which are also qualified, but not specifically ERISA, then it’s a bit more complicated.
A rollover IRA, for example, while not strictly an “ERISA” qualified plan, retains it’s ERISA protections if it came directly from an ERISA plan custodian. If your 401K was transferred directly into a rollover IRA, then it retains ERISA creditor protections, as long as do not co-mingle the assets with non-ERISA assets.
The most common Non-ERISA plans are the IRA and the Roth IRA. In many states, courts and legislatures have extended the same type of ERISA protection over these state-regulated retirement assets. In other states, however, there is limited creditor protection. And in yet other states the protection is left to the court’s discretion (which often feels like no protection at all). All of this has created a confusing landscape in which clients and planners both are left uncertain as to where they really stand.
The Second Challenge
The second challenge for planners was to figure out exactly how to protect plan assets without triggering the tax hit of removing the assets from the plan. And to add yet another challenge, how to use the superior offshore jurisdictions to protect U.S. based qualified plan assets. The end result is that most planners simply ignore retirement assets and just hope that it works out okay. But if you have significant assets in a plan where your protection is not clear, then this is just not good enough. The good news is that there is a way to accomplish sophisticated offshore protection for these assets. Here’s how we do it.
The Offshore Retirement Plan Solution
The first step is to qualify your retirement plan to invest in what are deemed “Alternative Investments”. This means changing your plan administrator to one who is qualified to work with investments in LLC’s and other private companies (this is what Alternative Investment means). There are several of these in the United States and using retirement plan assets to invest in alternative investments, such as LLC’s that hold real estate. This also means that your plan should be self-directed so that you can determine what investments to make.
The second step is to choose an investment which itself is inherently asset protected. This is where we can begin to add the offshore advantage by setting up a Manager Managed LLC in a preferred offshore asset protection jurisdiction. We often use the country of Nevis, which has a great statute and significant creditor protections strongly incorporated into it. The plan would then invest in the LLC membership interest and transfer assets to an offshore account set up and managed by the Manager of the LLC. And this is where the real magic happens.
The third step is to use your Bridge Trust® as the Manager of the Manager Managed LLC. If you have already explored the power of the Bridge Trust®, then you know that prior to there being any attack on your assets, you can be the Trustee of your own Trust. This means that, as Trustee, you will also be the Manager on the Manager Managed Nevis LLC. However, if there is ever an attack on your assets, or any threat to your wealth, the protective features of your Bridge Trust® will trigger the trust and the offshore Trustee would then become the full Trustee, and you would be removed from that control position.
The result is that your Nevis LLC, which holds your retirement plan assets, would then also be managed by your offshore Trustee and they would apply the same protective features to the management of the LLC assets, as they would to the Trust assets directly. How this would work is specifically outlined in both the Bridge Trust® and the Nevis LLC operating agreement.
And since the LLC assets are already in an offshore Private Banking center, which is specifically selected because it meets the requirements of what we consider an asset protection qualified bank, then both the control and the assets themselves are out of the reach of a U.S. court, judge and jury.
Conclusion
As you can imagine, the key here is making sure each part is correct and that you also have the right players involved. If you already have a Bridge Trust®, then adding retirement plan protection is a pretty simple step. If you do not yet have any planning established, you can still do it all at the same time. As with any asset protection planning, timing is critical and having your planning in place well before any need to use it is essential.
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