The Restricted Property Trust was designed for business owners and key employees of a business. Its main objective is long-term, tax favored cash growth and cash flow utilizing a conservative asset class. A Restricted Property Trust may provide investment earnings of 8-percent or more when compared to other fixed income vehicles.

Annual contributions to a Restricted Property Trust are fully deductible to an employer, and partly taxable to a participant. The trust owns a whole life insurance policy, which allows for tax-deferred growth on the appreciation of the cash value. When funding the Restricted Property Trust is complete, the insurance policy is transferred from the trust to the individual participant. Upon distribution of the policy, a withdrawal is made from the policy to pay any taxes owed.

Contributions made to a Restricted Property Trust are fully deductible to the business. A portion of the contribution is considered income taxable to the indivdidual participating in the plan. The balance of the contribution is used to fund the whole life insurance policy and isn’t includable as taxable income for the plan participant.

The tax treatment of a Restricted Property Trust is dependent on the requirements of the trust and the whole life insurance policy. One of the key trust provisions is the employer is required to make the annual contribution every year according to the pre-selected funding period. If the employer is unable to contribute during the funding period, the policy is surrendered, and the proceeds are distributed to a charity the participant designates at the time the trust was established.

This results in a “substantial risk of forfeiture.” Once the policy has been transferred, the plan participant can access non-taxable income from the policy, continue to fund the life insurance policy’s death benefit, or poossibly exchange the policy for one with a larger face amount.

Anyone business owner who receives earned income from a S Corporation, C Corporation, LLC, or partnership can establish a Restricted Property Trust.

A Restricted Property Trust is not governed by the same code sections as qualified plans (e.g. 401(k), Profit Sharing Plan, Cash Balance Plan, etc.). As a result, limits on participation and tests are note applicable, and any contributions to a Restricted Property Trust will not impact contributions to any existing Qualified Plans.

Participants in a Restricted Property Trust are able to choose their individual funding level irrespective of the funding level of other participants (if any) in the plan.

No. A Restricted Property Trust is not a Qualified Plan. The Restricted Property Trust is governed under other code sections unrelated to qualified plans. However, the code sections do have certain limitations.

Yes. One of the many benefits of a Restricted Property Trust (unlike qualified plans) is it can be used only for the benefit of a business owner(s). The Restricted Property Trust allows the owner to decide who participates in the plan, even if it is a single owner.

Annual contributions to a Restricted Property Trust may not be less than the minimum contribution level of $50,000.

Maximum annual contributions are based on “reasonable compensation.” Because of this, many higher-income earning owners are able to contribute hundreds of thousands of dollars or more per year to a Restricted Property Trust.

A Restricted Property Trust is not the right “fit” for everyone.

Due to the requirements of a Restricted Property Trust, the minimum pre-determined planned funding period and subsequent extensions are required to be for a minimum of five years or more. If the participant is not able to make the annual contribution, it will result in the assets of the Restricted Property Trust being forfeited to a designated charity chosen by the participant when the trust is established.

A business owner needs to be confident they can meet the funding requirement they commit to when the Restricted Property Trust is established.

The Restricted Property Trust is so strictly governed in order to achieve the significant results from the strategy and the rules that govern “property transferred in connection with goods and services.” Should the owner be considered to have recognized “constructive receipt” of the asset, or any form of control of the assets it owns, there is no tax deduction as it will be disallowed.  Because there is a “substantial risk of forfeiture” the Restricted Property Trust is not considered to be any form of deferred compensation.