Private Retirement Trust (“PRT”) is a sophisticated exemption protection vehicle that requires a skillful and proficient PRT integrated team to realize its purpose. The PRT can be a flexible and powerful exemption protection strategy, but, as with all trust and entity planning, it is only as good as the individuals appointed within the PRT instrument, the retirement appraisal and analytics supporting the legitimacy of the “plan,” the integrity of the “trust,” and the administrative support behind it.
Assets held in a PRT only benefit from the exemption protection provided by CCP § 704.115(b) (the “California statute”) if the PRT is properly structured, funded, and annually administered to maintain compliance with applicable laws. That standard of care is impossible to maintain without the right team in place.
Proper structure, funding, and administration of the PRT requires extensive coordination by the PRT integrated team toward your ultimate retirement goal. The team must constantly collaborate on year-to-year exemption analysis to ensure a client’s PRT is annually funded so that retirement goals are realized. This requires a robust and sufficiently documented fact-driven analysis, which will frequently change as the client’s age, income, asset exemption amounts, and other circumstances change over the lifetime of the PRT.
The PRT integrated team includes five distinct roles, each responsible for a different aspect of the PRT:
- the PRT Retirement Planner;
- the PRT Trustee;
- the PRT Nestor;
- the PRT Pylortes; and
- the PRT Administrator.
1. The PRT Retirement Planner
The role of the PRT Retirement Planner is to design a PRT Retirement Plan that combines the client’s retirement goals and objectives while maximizing the exemption protection provided by the California statute. The PRT Retirement Plan and the corresponding retirement appraisal constitute the essential foundation of the PRT and set the stage for the PRT Beneficiary’s retirement story, because it is this analysis that justifies what retirement lifestyle assets are needed throughout the client’s lifetime.
The PRT Retirement Plan takes into consideration, but is not limited to, the following factors:
- the client’s net worth and projected lifetime net worth;
- the projected retirement age;
- what assets will be included in the PRT investment account;
- projected retirement assets throughout the client’s lifetime;
- what assets are needed to produce the lifetime cash flow during the client’s retirement years (typically to age 95); and
- itemized lifestyle expenses per year throughout the client’s lifetime.
With this information and more, the PRT Retirement Planner is able to generate a retirement planning model integrating exemption diagnostics, as well as provide Monte Carlo projections — a mathematical technique that generates random variables for modeling the projected variability of the retirement asset values throughout the lifetime of the PRT Client.
2. The PRT Trustee
The PRT Trustee is the legal title holder of all assets held by the PRT and is bound by fiduciary duties to manage those assets and carry out the purposes of the trust. The most important duty of the PRT Trustee is to defend the trust, which means taking all reasonable action to protect and preserve the rights of the trust, enforce its claims, and defend against legal actions that could financially harm it.
The PRT Trustee has broad powers to take any action on behalf of the PRT that maximizes, strengthens, enhances, or increases the protection of the PRT Beneficiary under the exemptions permitted by the California statute and other laws. In particular, the PRT Trustee has the power to:
- enforce asset exemption protection under the California statute;
- ensure proper analysis, cash flow, management, and administrative decisions are made in furtherance of the PRT Retirement Plan objectives to mitigate risk;
- provide active asset management to the PRT Retirement Plan assets and act in all matters concerning risk management toward preserving the PRT principal;
- collaborate with the PRT Nestor so that distributions of the PRT assets are made in the most efficient method while also maximizing the PRT residue and minimizing the associated risk for future retirement distributions;
- appoint, employ, and remove investment advisors, accountants, auditors, depositories, custodians, brokers, consultants, attorneys, advisors, agents, and employees to advise or assist in the performance of the PRT Trustee’s duties; and
- perform the PRT post-retirement administration, including effectuating the PRT Retirement Plan distributions to the PRT Beneficiary.
3. The PRT Nestor
The PRT Nestor is granted authority under the terms of the trust to direct investments and to exercise expertise to separate investment decisions regarding the trust corpus from the other responsibilities of the PRT Trustee. Although the role of the PRT Nestor is technically optional, opting out can be fatal to the validity of the PRT.
This is because the PRT Retirement Planner designs a retirement story for the PRT Beneficiary based on the circumstances and goals of that particular PRT Beneficiary, and that retirement story contains certain investment and asset performance benchmarks that must be achieved in order for the retirement goals to be realized. The PRT Nestor’s primary function is to make certain that these investment and asset performance benchmarks are met in order to effectuate the success of the retirement plan.
To that end, the PRT Nestor has the power to:
- direct the PRT Trustee to invest in any type of investment pursuant to the PRT Retirement Plan, including stocks, bonds, mutual funds, Exchange Traded Funds, life insurance, annuities, and real estate, for purposes of realizing the goals and objectives of the PRT Retirement Plan;
- direct the PRT Trustee to rent, lease, refinance, hire or fire certain property managers, or take any other type of action involving real property; and
- instruct the PRT Trustee to enter into any type of tax-free exchange of certain types of investments.
4. The PRT Pylortes
The purpose of the PRT Pylortes is to direct the PRT Trustee in certain matters concerning the PRT and to aid the PRT Trustee in achieving the goals and objectives of the PRT Retirement Plan. The office of the PRT Pylortes is best suited for an attorney so that communications between the PRT Pylortes and the PRT Beneficiary remain confidential and protected under the attorney-client privilege.
The PRT Pylortes has the power to:
- amend, alter, or modify the PRT;
- remove and appoint (as necessary) any current and acting PRT officeholder to make sure someone is acting for the benefit of the PRT Beneficiary to further the goals of the PRT;
- settle any controversies or disputes concerning or arising out of the interpretation of any language of the PRT; and
- override the decisions of the PRT Nestor if any action by the PRT Nestor is, as determined by the PRT Pylortes in the PRT Pylortes’ sole discretion, done in bad faith, with gross negligence, or not in furtherance of the goals of the PRT and the PRT Retirement Plan.
5. The PRT Administrator
The PRT Administrator provides annual support services to the PRT Trustee that are of a non-fiduciary nature. These services are critical to the ongoing maintenance of the trust and generally include:
- intake and recordkeeping;
- tracking assets, contributions, distributions, loans, and promissory note payments;
- assisting with matters such as financial statements, beneficiary statements, and tax returns; and
- reporting to and communicating with the client.
Although the PRT Administrator does not hold a fiduciary role, the accuracy and consistency of the records they maintain are essential to demonstrating that the Plan has been administered in compliance with its terms — a critical factor if the PRT is ever challenged by creditors.
How the PRT Integrated Team Protects Your Retirement Assets
Each role within the PRT integrated team exists for a specific reason, and each one reinforces the legal defensibility of the PRT. The Retirement Planner builds the factual and analytical foundation. The Trustee defends the trust and manages its assets. The Nestor enforces the investment benchmarks the entire retirement story depends on. The Pylortes preserves the structure and resolves disputes. The Administrator keeps the documentation that proves the Plan has been followed year after year.
Together, these five roles ensure the PRT is structured, funded, and administered in a manner that satisfies the requirements of CCP § 704.115(b) and supports the exemption protection at the heart of the strategy.
Work With a Private Retirement Trust Attorney
A Private Retirement Plan and Private Retirement Trust are complex and comprehensive devices. When properly designed and implemented with the right integrated team in place, they protect a participant’s retirement assets by recharacterizing those assets as exempt under CCP § 704.115(b).
Dustin I. Nichols, creator of the Private Retirement Trust, has spent over 30 years designing integrated exemption strategies for California clients. If you are considering a PRT or want to evaluate whether your existing plan has the right team and structure in place to withstand creditor scrutiny, schedule a free consultation or call the Irvine, California office at (949) 240-1101.
Frequently Asked Questions About the PRT Integrated Team
Who Is on the PRT Integrated Team?
The PRT integrated team is made up of five roles: the PRT Retirement Planner, the PRT Trustee, the PRT Nestor, the PRT Pylortes, and the PRT Administrator. Each role is responsible for a different aspect of structuring, funding, administering, or defending the PRT.
What Does the PRT Retirement Planner Do?
The PRT Retirement Planner designs the PRT Retirement Plan and the supporting retirement appraisal. This analysis evaluates the client’s net worth, projected retirement age, lifestyle expenses, and lifetime cash flow needs, and uses tools such as Monte Carlo projections to model the variability of retirement assets over the client’s lifetime.
What Is the Role of the PRT Trustee?
The PRT Trustee is the legal title holder of all assets held by the PRT and is bound by fiduciary duties to manage those assets, defend the trust against legal challenges, and carry out the purposes of the Plan. The Trustee also collaborates with the PRT Nestor on distributions and may appoint or remove advisors, accountants, custodians, and other professionals.
Is the PRT Nestor Required?
Technically, the PRT Nestor role is optional, but opting out can be fatal to the validity of the PRT. The retirement story designed by the PRT Retirement Planner depends on specific investment and asset performance benchmarks being met, and the PRT Nestor exists to make sure those benchmarks are achieved.
Why Is the PRT Pylortes Usually an Attorney?
The PRT Pylortes is best suited for an attorney so that communications between the PRT Pylortes and the PRT Beneficiary remain confidential and protected under the attorney-client privilege. The Pylortes also has authority to amend the PRT, replace officeholders, resolve disputes, and override the PRT Nestor in cases of bad faith, gross negligence, or actions not in furtherance of the Plan.
What Does the PRT Administrator Handle?
The PRT Administrator provides annual, non-fiduciary support services to the PRT Trustee. This includes intake and recordkeeping; tracking assets, contributions, distributions, loans, and promissory note payments; assisting with financial statements, beneficiary statements, and tax returns; and reporting to and communicating with the client.
Can One Person Fill Multiple PRT Roles?
While certain roles can technically be combined, courts have invalidated plans where the participant exercises substantially all control over contributions, management, administration, and use of funds. Separating these roles among independent professionals strengthens the retirement purpose of the Plan and the defensibility of the exemption.
How Often Does the PRT Integrated Team Need to Collaborate?
The team should collaborate on a year-to-year basis to perform exemption analysis, revisit the retirement appraisal, and confirm that funding levels remain appropriate. A client’s age, income, asset exemption amounts, and lifestyle needs change over time, and the analysis supporting the PRT must be updated to reflect those changes.
LEGAL DISCLAIMER
This article is for informational purposes only and does not constitute legal advice. The information provided is general in nature and may not apply to your specific circumstances. No attorney-client relationship is formed by reading this content. For advice tailored to your situation, please consult with a qualified attorney. The Law Office of Dustin I. Nichols, APC serves clients throughout California.
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