Long-Term Asset Accumulation Strategy: Restricted Property Trust

Joseph Resnick & Steve Schaumberger of JR KATZ -   Print  |
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At the 18th Annual Ambulatory Surgery Centers Conference in Chicago we had the pleasure of presenting the Restricted Property Trust (RPT) a tax-favored, long-term asset accumulation strategy. In case you missed our presentation, here is a brief summary of the RPT, which we have found has a strong appeal to business owners and physician/doctor groups. The RPT provides significant income tax savings, personal asset protection and death benefit coverage on a discriminatory, pre-tax basis. It is an appealing strategy when considering a typical host of obstacles faced by current business owners and operators in the medical care industry today, namely:

•    Increased liability concerns
•    Increased income tax rates looming on the horizon
•    Inability to save enough through Qualified Plans

Benefits of the RPT include:

•    Up to 70 percent annual income tax savings to participants
•    Tax deferred growth of plan assets
•    Contributions are 100 percent deductible to employers
•    Creditor protection
•    Partners can individually choose their level of participation, or choose not to participate at all
•    Not subject to Qualified Plan participation requirements
•    Death benefit protection
•    Enhanced returns on conservative plan assets

How does an RPT work?

Fully tax-deductible contributions are made by the business to an RPT for each participant. The entire contribution is used to fund a whole life insurance policy on each participant, with approximately 30 percent of the contributions treated as current taxable income and the remaining 70 percent not subject to tax.

Contributions must be made each year that the trust is in existence. There is no ability to defer or accelerate contributions. Failure to make the annual contribution causes both the whole life policy to lapse and the surrender proceeds within the trust to be given to a pre-selected charity. This risk of forfeiture is a critical plan provision and causes many plan participants to scale back their planned contributions.

While the trust is intact, whole life cash values are protected from creditors and grow without being subject to income tax. If death occurs, the death benefit is paid to a named trust beneficiary and is not subject to estate or income taxes.

The trust has a scheduled period of five years and can be extended by the participant.  At termination the participant receives the whole life policy.  A portion of the cash value will be subject to taxation, with a longer trust period resulting in reduced taxes. A non-taxable policy disbursement can be made at the participants' option to cover this tax cost. Once the policy, which at this point will require no additional funding, is in the participants' hands a number of options exist, among them distributing non-taxable funds and / or maintaining insurance coverage.  

The RPT is available to individuals with earned income, whether from a C-Corp, S-Corp, or partnership. Because an RPT is not a Qualified Plan participation limits and tests do not apply. Individual participants can select their own level of contribution, regardless of what other participants contribute.

If you would like to gain additional information, have questions, learn more about RPT, or set up a time to meet with our professional consultants and advisors, please contact Joseph Resnick of JR KATZ at joseph@jrkatz.com, or call 847-564-8430.

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