Utilizing Retirement Plans for Asset Protection - Part I

There are certain protections that exist under both the federal and California law that shield retirement plans from creditor claims. Such protections may be beneficial to individuals who do not only seek to transfer wealth to their beneficiaries with the least tax consequence, but also want to ensure protection of their assets from creditors. In this instance, an estate litigation attorney may be able to advise a client on asset protection strategies that complement their estate plan.

One such asset protection strategy, as already mentioned, is the use of retirement plans. Retirement plans can be broken down into two categories: 1) qualified retirement plans and 2) nonqualified retirement plans. Qualified retirement plans are plans that comply with the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). Qualified plans subject to ERISA include profit sharing plans, 401k, pension plans, money purchase plans and defined benefit plans. The federal law provides the best asset protection for qualified plans. As a matter of fact, the federal law only protects qualified plans but not nonqualified plans, unless the funds were rolled over from a qualified plan to a nonqualified plan. In this case, the amounts are protected as if it were a qualified retirement plan, provided that the assets can be traced back to the original retirement plan.

More on this topic on subsequent blogs…

*This blog entry was not written by an Attorney and should not be construed as professional legal advice.

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