Understanding Private Retirement Trusts in California
In the opening session of our four-part Private Retirement Trust Series, attorney Dustin I. Nichols introduced attendees to one of California’s most underutilized but powerful tools for asset protection: the Private Retirement Trust (PRT).
This webinar laid the legal and strategic foundation for understanding how PRTs convert exposed assets into exempt retirement assets under CCP § 704.115(b). It’s a timely topic, especially as recent changes in California’s exemption laws (like AB 2837) reduce protections for other types of tax-qualified plans.
Why Asset Protection Starts with Exemptions
California is one of the most litigious states in the country, with 65% of the nation’s civil cases filed in either California or New York. For business owners and professionals, exposure to liability is constant. As Dustin explained, exemption planning isn’t just a legal technicality, it’s the first line of defense. And in California, the PRT is a uniquely effective structure for preserving wealth.
While many tax-qualified plans have lost their full protection under recent amendments to CCP § 704.115, the Private Retirement Trust remains intact. It continues to provide the “trifecta” of retirement exemption:
1. Asset protection within the trust
2. Protection of distributions
3. Protection of the death benefit
Designing an Effective PRT
A PRT isn’t a plug-and-play document. It must be properly designed, funded, and administered to ensure it qualifies for statutory protection. Dustin walked through real-world strategies for establishing a compliant structure, from preparing a retirement appraisal to identifying legitimate funding sources like promissory notes or fractional real estate interests.
The trust must be employer-sponsored (often by the client’s own entity), managed by an independent trustee, and backed by annual funding commitments. Importantly, the PRT can invest in a wide variety of asset, from stocks and life insurance to digital assets and commercial property, making it a flexible and robust tool for high-net-worth planning.
Practical Considerations for Practitioners
The panel highlighted practical considerations when implementing these trusts. Determining whether well-being program expenses are trust administrative costs or taxable distributions is critical. Letters of wishes were discussed as meaningful tools for settlors to communicate intentions without imposing rigid mandates, guiding trustees with nuance and humanity.
Speakers also emphasized the importance of thoughtful implementation. Trustees must vet vendors providing educational or wellness services to ensure quality and appropriateness. While large family offices often integrate these programs, Delaware’s statute allows even modest trusts to offer scalable well-being initiatives, such as online courses or facilitated family meetings.
Avoiding Pitfalls
Not all assets belong in a PRT. As Dustin emphasized, personal-use items like primary residences, boats, or jewelry aren’t appropriate for funding because they do not contribute to a participant’s retirement benefit stream. The focus must remain on real, measurable retirement need, backed by objective planning tools and solvency documentation.
PRTs also require ongoing administration, including annual updates to the participant’s retirement model and contribution schedule. This ensures the trust remains both legally compliant and aligned with the participant’s changing financial reality.
A Path Forward
Dustin closed the session by encouraging planners and professionals to revisit exemption planning with renewed purpose. The PRT isn’t just an asset protection tool, it’s a retirement planning vehicle that helps business owners retain wealth, reduce creditor exposure, and provide long-term security for their families.
To learn more about whether a PRT is right for your client, or yourself, watch the full webinar above or contact us to schedule a personalized consultation.