Restricted Property Trust https://restrictedproperty.com/ A Tax Deductible Solution for Business Owners Thu, 09 Jan 2020 00:35:33 +0000 en-US hourly 1 https://wordpress.org/?v=6.1.1 A Guide to Tax-Deferred Growth https://restrictedproperty.com/a-guide-to-tax-deferred-growth/ https://restrictedproperty.com/a-guide-to-tax-deferred-growth/#respond Thu, 02 Jan 2020 13:00:59 +0000 https://restrictedproperty.com/?p=1438 The post A Guide to Tax-Deferred Growth appeared first on Restricted Property Trust.

]]>

Taxed deferred growth allows individuals to increase their return on investments by “deferring” tax payments to a later date.

Now, we all now taxes are something we have to live with and there is no avoiding them completely. However, there are ways to reduce the impact of taxes on your earnings with specialized tax deferred plans that postpone payments until a much later date.

We’re talking decades.

If you’re in a higher tax bracket, or just looking for ways to better capitalize on your investments, then tax deferred accounts are something you should be interested in learning more about.

Did you know that the estimated median retirement savings were $117,000 for fifty-somethings? Nowhere near the recommended amount you need to keep up with rising living costs after retirement. Yet with so many different options in the market, it can be difficult to know how to effectively increase your savings balance.

What Is Tax Deferred Growth

Certain types of accounts, vehicles, and products allow the investor to defer paying the accrued taxes until a later date. We call these tax-deferred accounts. Tax-deferred accounts let you earn money on your investment now and pay any taxes (usually income and capital gains) further down the line.

The Difference Between Tax Deferred and Tax Exempt

Just to be very clear, tax deferred is not the same as tax exempt. You still pay your taxes for tax deferred accounts, just at a later date.

You as an individual cannot open a tax exempt account but you can invest in bonds that pay tax exempt interest. This is another way to maximize the return on your investment.

So, what are the options when it comes to tax deferring wages?

Examples of Tax-Deferred Accounts

Employer-sponsored retirement plans are examples of tax deferred vehicles that allow employees to direct pre-tax salary to investment accounts. These include 401(k), 457 or 403(b) plans.

Regular IRAs are also tax deferred and you can contribute to multiple plans. The value of the annuity and cash surrender of whole life insurance policies are also tax-deferred.

There are also tax favored savings accounts that allow for tax deferred growth such as a Health Savings Account. It’s worth noting that if an HSA is used to pay for qualified medical expenses, they are also tax-free.

Employee stock ownership investments are often tax deferred and act as an incentive for longer employment.

So, as you can see there are multiple ways to benefit from tax deference schemes depending on your situation and preferences.

But why are they so effective and how will they benefit you as an investor?

Why It Matters

Tax deferred growth benefits investors in two ways.

First, it allows the investor to earn on the compounding investment instead of paying taxes as they go. Which means they earn higher returns than taxed accounts in the long run.

Second, the benefit of tax deferred accounts is that they are usually put in place while the investor is in their highest tax bracket. When it comes time to access the tax-deferred account and need to pay taxes on the deferral, they may be retired and in a lower tax bracket.

This is why the higher your income tax bracket, the more beneficial it can be to use tax deferred accounts for your retirement savings.

In short, it matters because it will accumulate assets at a more rapid pace and avoid your higher tax rate by postponing the tax payments until a time you may be in a lower tax bracket.

If you’re a business owner and you’re looking into options to reduce and defer your tax payouts? Read our guide on the 7 different ways for you to effectively reduce taxes.

How It Works

Let’s give an example using the traditional Individual Retirement Account (IRA). If you decided to invest $10,000 into an IRA in 2020 and the account earns $1000 in 2020, you do not owe taxes on that $1000 in 2021. Instead, you will pay the taxes when you withdraw the money from the IRA, which could be decades from now.

So, let’s think about what that means for your increased earnings. If you are in a 45% tax bracket, you would have had to pay $450 in income tax on the 2020 earnings of $1000. Leaving with a net gain of $550.

If you’re making a 10% annual return on your investment, those earnings would, in turn, would leave you with $550 in 2021. However, if you used an investment, product, or vehicle providing tax deferral you would earn an ROI on the full $1000 instead of the $550 you would have had after paying your taxes.

So, as you defer the taxes each year you can see that the advantage will compound giving your high returns.

The last thing you should know is that there can be penalties incurred for anyone who withdraws funds before a certain allotted time has passed. That means you only really want to be using tax-deferred growth vehicles for long-term investments.

Earn Money Now, Pay Taxes Later

Using permanent life insurance as a tax deferral vehicle provides a unique opportunity for policy owners. Whether it’s whole life insurance or universal life insurance, the cash value growth in the policy is tax deferred.

If the policy owner desires to take withdrawals from the policy during retirement they can do so on a tax-exempt basis. This done via a combination of principal withdrawals and policy loans. This is one of the reasons the Restricted Property Trust can be so beneficial for a high-income earning business owner.

As we mentioned earlier, you can invest in multiple tax deferred savings plans, so look into different options to find the best allocation for you.

Above all, don’t be tempted to withdraw anything early and hold out until you’re in a more favorable tax bracket to reap the highest advantage from these accounts.

We hope our quick guide to tax deferred investments has given you the information you need to think about how you can improve your finances.

We also provide consultations and webinars to introduce you to the various tax reduction methods for your business or personal finances. Contact us here to find out more.

 

The post A Guide to Tax-Deferred Growth appeared first on Restricted Property Trust.

]]>
https://restrictedproperty.com/a-guide-to-tax-deferred-growth/feed/ 0
Penn Mutual Whole Life Insurance and the Restricted Property Trust https://restrictedproperty.com/restricted-property-trust-whole-life-insurance/ https://restrictedproperty.com/restricted-property-trust-whole-life-insurance/#respond Fri, 01 Nov 2019 18:00:01 +0000 https://restrictedproperty.com/?p=1413 The post Penn Mutual Whole Life Insurance and the Restricted Property Trust appeared first on Restricted Property Trust.

]]>

The Restricted Property Trust allows business owners and key employees the ability to mitigate income taxes, receive tax-deferred accumulation, and tax-favorable distributions.

One of the key components that makes the Restricted Property Trust so effective from a tax perspective is the whole life insurance policy. The Restricted Property Trust whole life insurance policy provides participants with an income tax-free death benefit, tax-deferred accumulation, and tax-favorable policy distributions.

When an employer makes the annual contribution, they are contributing to both their Death Benefit and Restricted Property Trust (RPT). Upon receipt of the contribution, the third-party trustee of the trust(s) deposits the contribution and makes the premium payments from the trust(s) to the whole life insurance company.

The Restricted Property Trust uses a whole life insurance policy issued by Penn Mutual. Penn Mutual was founded in 1847 and, as the name suggests, is a mutual insurance company headquartered in Pennsylvania.

As a mutual insurance company, Penn Mutual is owned entirely by its policy holders. As a result, the policy holders participate in the profitability of the insurance company in the form of policyholder dividends or reduced future premiums.

Penn Mutual is the carrier of choice for the Restricted Property Trust because of the company’s financial strength and stability. Penn Mutual currently has an A+ rating from both A.M. Best and Standard & Poor’s. They have maintained an “A” rating or better from A.M. Best for 90-years in a row with a surplus exceeding $2.1 billion and annual revenue exceeding $3.2 billion.

Dividend Rate Factors

Mutual insurance companies determine the annual dividend rate using several key factors. A few of these factors include:

  1. Claims Experience. Claims experience is based on the number of projected death benefit payouts versus actual death benefit payouts to policy beneficiaries.
  2. Operating Expenses. Operating expenses are the projected expenses needed to operate the company versus the actual costs for maintaining existing policies and acquiring new policyholders.
  3. Interest Earnings. Interest earnings is the rate the company achieved from its investments of premiums received and surplus.

Once the key dividend measure are considered the insurance company determines how much of the surplus must be set aside to pay future claims and operate the company. From there, the Board of Trustees determines how much of the surplus is available to be paid to policyholders as a dividend.

Penn Mutual’s ability to project claims and operating experience for whole life policies over the last decade has been consistent. Because of their consistency and ability to manage all components of the dividend calculation they are able to continue to offer strong dividend payouts to policyholders every year.

Penn Mutual’s Investment Portfolio

As of December 31, 2018, $13.7 billion of Penn Mutual’s investments included cash, short-term and investment grade bonds. This represented 82.8-percent of their total invested assets.

The remaining invested assets were in Other Invested Assets and Alternative Assets. These investments include investments in limited partnerships, venture capital, private equity, and hedging assets used to protect the company from interest rate and market fluctuations.

Penn Mutual Has One of the Most Consistent and Highest Dividend Rates in the Country

One of the biggest challenges faced by mutual insurance companies is their ability to achieve consistent income regardless of market conditions. Penn Mutual has been one of the most successful carriers when it comes to achieving this.

From 2008 thru 2018, Penn Mutual maintained a 6.34-percent dividend rate. During this time every other mutual company experienced a dividend rate reduction in some form. For instance, in 2008 Northwestern Mutual had a 7.50-percent dividend rate. By 2018, this rate had dropped to 4.90-percent.

And while Penn Mutual reduced their dividend rate from 6.34-percent to 6.10-percent in 2019, this dividend rate remains one of the highest in the industry amongst mutual insurance companies.

In fact, when you compare Penn Mutual’s dividend rate history to other fixed interest vehicles their performance and ability to maintain their dividend is quite impressive.

Penn Mutual Dividend Rate Comparison

Penn Mutual is committed to putting the interest of their policyholders first. With their proven record of paying dividends to policyholders on a consistent basis makes Penn Mutual the ideal carrier for the Restricted Property Trust.

The Penn Mutual whole life insurance policy in the Restricted Property Trust offers participants both death benefit protection and accumulation. Policy accumulations grows tax-deferred, while distributions from the policy are accessible tax-free.

The policy offers several different options based on the needs of the individual participant. In many cases, the original intent of establishing a Restricted Property Trust is to accumulate future income on a favorable basis. But as time and needs change the original goal of the plan can shift from accumulation to death benefit protection.

Because of the flexibility of the policy, changes can be made to the policy to address the ongoing needs of its participants once funding of the Restricted Property Trust is complete. Because of the nature of the Restricted Property Trust policy changes cannot be made while the trust is actively being funded.

To learn more about how you or your company may benefit from a Restricted Property Trust please email us at hello@restrictedproperty.com or click here to request a Restricted Property Trust proposal.

The post Penn Mutual Whole Life Insurance and the Restricted Property Trust appeared first on Restricted Property Trust.

]]>
https://restrictedproperty.com/restricted-property-trust-whole-life-insurance/feed/ 0
How Does A Restricted Property Trust Work and Who Is Eligible? https://restrictedproperty.com/how-does-a-restricted-property-trust-work-and-who-is-eligible/ https://restrictedproperty.com/how-does-a-restricted-property-trust-work-and-who-is-eligible/#respond Tue, 01 Oct 2019 13:00:26 +0000 https://restrictedproperty.com/?p=1408 The post How Does A Restricted Property Trust Work and Who Is Eligible? appeared first on Restricted Property Trust.

]]>

​Are you a business owner interested in reducing taxes?

If so, you may want to consider a Restricted Property Trust. What is a Restricted Property Trust (RPT) and who can benefit from it? 

In this post, we answer both questions and more. Keep reading for additional information.

What is a Restricted Property Trust (RPT)?

A Restricted Property trust (RPT) is a plan designed to help business owners reduce and defer taxes. However, it is quite different from other taxable investments.

Restricted Property Trust Annual Contribution

Eligible businesses make annual contributions of at least $50,000 to a Restricted Property Trust for a period of five years or more.

Businesses can contribute a larger amount. The maximum contribution is based on the business need for life insurance coverage. Depending on this need will determine the maximum contribution level for the participant.

Contributions to the Restricted Property Trust are entirely tax-deductible to the participating entity. Participants (oftentimes the business owner or key employees) must recognize a minimum of 30-percent of the contribution on their individual tax return.

Tax-Deferred Accumulation & Tax-Advantaged Distribution

Contributions to a Restricted Property Trust have tax-deferred accumulation. This means that plan participants do not pay taxes on cash value appreciation during the years the Restricted Property Trust is being funded.

Once funding of the Restricted Property Trust is completed, participants will owe a small tax which is paid in the form of a withdrawal from the policy. From there, distributions from the policy are received tax-free.

Five-Year Extensions

Businesses can also choose to extend the funding period of RPT plans by an additional five years. Most Restricted Property Trusts use funding period of 5-years with the option to add additional five-year funding periods. However, businesses can choose a period of 5-years or more, but never less than 5-years.

Restricted Property Trusts are not qualified plans (such as a 401(k)). For this reason, they are not as limited in terms of participants and individual contribution value, nor do they impact contributions to any existing qualified plans.

Restricted Property Trust Life Insurance

What is the Funding Vehicle for a Restricted Property Trusts (RPTs)?

A Restricted Property Trust is funded using a cash value whole life insurance policy. The policy is designed to provide participants with reduce taxes, deferred growth, and tax-free distributions.

Participants in the plan are typically limited to key employees and business owners. Any outside parties are unable to participate in the benefits of a Restricted Property Trust life insurance policy.

How Restricted Property Trust Life Insurance Works

A Restricted Property Trust is funded using a whole life insurance policy. The policy accumulates significant cash value over five-year periods.

Once the funding of a Restricted Property Trust is complete, the ownership of the life insurance policy is changed from the Restricted Property Trust to the participant.

At the point ownership is change a tax is owed on a portion of the policies cash surrender value. The tax owed is generally paid in the form of a distribution from the policy to the participant. However, participants may choose to pay the taxes from other assets outside of the life insurance policy.

From here, the policy works like any other permanent life insurance policy. The participant can access tax-free distribution, surrender the policy, 1035 exchange to another policy, tec.

Substantial Risk of Forfeiture

A Restricted Property Trusts requires the businesses to make a contribution of $50,000 or more for a minimum of 5-years.

For this reason, there is a lot of risk involved in establishing a Restricted Property Trust. The IRS calls this risk “substantial risk of forfeiture.”

If the business is unable to make $50,000 contributions each year for five years, the third-party trustee surrenders the policy, which is then distributed to a 501(c)(3) (public charity) designated by the participant when the trust is established. The participant forfeits the entire cash value of the trust.

Who is Eligible for to Establish a Restricted Property Trust?

When it comes down to it, the reality is the Restricted Property Trust is not for everybody. The ideal candidate for a Restricted Property Trust is a business owner with annual income of $600,000 or more, with fairly stable or growing cash flow, and is interested in reducing their taxable income.

In addition, only corporate entities are eligible to establish a Restricted Property Trust to include S Corporations, C Corporations, most Partnerships, and most LLCs.

Unfortunately, Sole Proprietorships or entities taxed as Sole Proprietors may not setup a Restricted Property Trust.

Unfortunately, sole proprietorships are not eligible for a restricted property trust.

There are number of benefits a Restricted Property Trust has to offer to different types of organizations. It can be an ideal solution for businesses with multiple partners and companies concerned about the impact the loss of an owner or key employee would have on the company.

Final Thoughts

A Restricted Property Trust helps businesses to strategically grow their assets while reducing their taxable income. The Restricted Property Trust utilizes a conservative whole life insurance policy that can provide an equivalent return of 8-percent or greater when compared to a taxable investment.

RPTs can be incredibly advantageous from a tax perspective. RPT can create great value for companies interested in reducing taxes, and participants who are interested in accumulated tax-favorable distributions during retirement.

A Restricted Property Trust can be used in tandem with company sponsored qualified plans without impacting contributions to either.

If you feel you may benefit from a Restricted Property Trust, we recommend working with speaking with one of our advisors to determine if a Restricted Property Trust may be appropriate for you and your company.

Schedule A Phone Consultation

The post How Does A Restricted Property Trust Work and Who Is Eligible? appeared first on Restricted Property Trust.

]]>
https://restrictedproperty.com/how-does-a-restricted-property-trust-work-and-who-is-eligible/feed/ 0
Restricted Property Trust 2019 Deadlines, Plan Fees, & Ongoing Costs https://restrictedproperty.com/restricted-property-trust-2019-deadlines-plan-fees-ongoing-costs/ https://restrictedproperty.com/restricted-property-trust-2019-deadlines-plan-fees-ongoing-costs/#respond Sun, 01 Sep 2019 13:00:55 +0000 https://restrictedproperty.com/?p=1393 The post Restricted Property Trust 2019 Deadlines, Plan Fees, & Ongoing Costs appeared first on Restricted Property Trust.

]]>

In order to ensure successful implementation of the Restricted Property Trust prior to December 31st, 2019, we have prepared the following information to include deadlines, plan setup fees, and ongoing costs.

2019 Restricted Property Trust Important Deadlines

  • November 29, 2019 – Medical Offers Must Be Obtained
  • December 6, 2019 – Law Firm Must Be Retained to Draft Trust

It is important to recognize that in order to obtain medical offers prior to November 29th, 2019, the participant must agree to completing an application and paramedical examination. In some cases, we will need to request medical records from the participants physician(s). This process can take 2 to 6 weeks. As a result, the underwriting process should begin no later than October 15, 2019.

2019 Restricted Property Trust Plan Setup Fees & Ongoing Costs

Restricted Property Trust Plan Setup Legal Fees

  • The legal setup fee is $7,500 plus $1,000 per participant.1
  • Legal fees paid between January 1, 2019 and November 29, 2019 will receive a $1,500 discount

1 The fees reflect standard fees. Fees may increase based on complexity and customization.

Restricted Property Trust Trustee Fees & Ongoing Costs

  • The trustee setup fee is $2,000 plus $500 per policy.2
  • Trustee fees paid between January 1, 2019 and December 13, 2019 will receive a $500 discount.
  • Ongoing trustee fees are currently $500 per policy.

2 The trustee fee is paid when the trust is funded. All new trusts funding in the last two weeks of the year will not receive the discount.

The only ongoing cost of the Restricted Property Trust after Year 1 is the Trustee Fee of $500 per policy. However, if you wish to engage the law firm on an ongoing basis there will be additional legal fees incurred.

For any additional questions please email us at hello@restrictedproperty.com.

The post Restricted Property Trust 2019 Deadlines, Plan Fees, & Ongoing Costs appeared first on Restricted Property Trust.

]]>
https://restrictedproperty.com/restricted-property-trust-2019-deadlines-plan-fees-ongoing-costs/feed/ 0
Whole Life Insurance and the Restricted Property Trust https://restrictedproperty.com/whole-life-insurance-and-the-restricted-property-trust/ https://restrictedproperty.com/whole-life-insurance-and-the-restricted-property-trust/#respond Thu, 01 Aug 2019 19:00:10 +0000 https://restrictedproperty.com/?p=1372 The post Whole Life Insurance and the Restricted Property Trust appeared first on Restricted Property Trust.

]]>

Whole life insurance is a permanent life insurance policies that offers death benefit protection, cash value accumulation, tax-deferred growth, and tax-free withdrawals. 

The use of a whole life insurance policy is necessary within the Restricted Property Trust. The use of whole life insurance is what allows the business owner to recognize the deduction. When contributions are made to the Restricted Property Trust the trustee makes a payment to the whole life insurance company.

In the Restricted Property Trust the participant receives a death benefit. The death benefit amount is determined based on the desired contribution. By doing this we are minimizing the amount of death benefit coverage in order to maximize the growth of the cash value.

When premium is received the cash value of the policy grows based on a credited dividend rate issued by the whole life insurance company. The cash value of a whole life insurance policy is very conservative and similar to a CD or Corporate Bond. There is no market risk in a whole life insurance policy. The growth of the cash value is not taxable on an annual basis.

After the participant has completed funding the Restricted Property Trust the ownership of the policy is transferred from the trust to the individaul participant. When ownership of the policy has been transferred the participant will take a withdrawal from the policy to pay the taxes owed on the transfer of ownership.

After the participant takes the withdrawal from the policy, the death benefit is reduced as much as possible to avoid any additional premiums being required. We refer to this as step as having a Reduced Paid-Up (RPU) policy.

At this point, the insured has a fully paid-up life insurance policy. 

By reducing the death benefit it allows the cash value of the policy to grow more rapidly. The reason for this is by reducing the death benefit we have less mortality and administrative costs. As the cash value grows so to will the death benefit.

Once the policy is transferred from the Restricted Property Trust the participant can access the cash value of the policy at any time in the form of a tax-free withdrawal or policy loan. As distributions are made from the policy the death benefit is reduced by a like amount. This can help the participant maximize retirement income.

It is important that the policy stays in force for the life of the insured. Any surrender of the policy or lapse in coverage will require the owner to pay ordinary income taxes on any amount in excess of the policy cost basis. 

Still confused about how it all works? We’re happy to help. Feel free to contact us any time for a consultation.

The post Whole Life Insurance and the Restricted Property Trust appeared first on Restricted Property Trust.

]]>
https://restrictedproperty.com/whole-life-insurance-and-the-restricted-property-trust/feed/ 0
7 Ways to Receive Tax-Free Income for Retirement https://restrictedproperty.com/7-ways-to-receive-tax-free-income-for-retirement/ https://restrictedproperty.com/7-ways-to-receive-tax-free-income-for-retirement/#respond Mon, 01 Jul 2019 13:00:32 +0000 https://restrictedproperty.com/?p=1368 The post 7 Ways to Receive Tax-Free Income for Retirement appeared first on Restricted Property Trust.

]]>

Will you be able to live on savings alone when you retire?

The average American retires at 62, and they need to stretch out their life savings for at least two decades. Meanwhile, there’s a growing trend of an increase in living costs (including skyrocketing healthcare costs).

Many wonder whether they’ll be able to achieve the quality of life they dream of on their savings alone.

If you are one of those who intend to invest during retirement, know that there are options for a tax-free retirement income.

How can you live a tax-free retirement? Check out these strategies for reducing your taxable income and keeping more of your money.

Pay Taxes Now to Save for Later

Many individuals rely on traditional retirement plans as a primary method of saving for retirement. All of these plans have tax implications, but Roth IRAs allow you to pay tax now to make the most of your money when you stop working.

1. Roth IRA

The Roth IRA is an account that allows you to accumulate assets in an IRA, receive tax-free growth, and tax-free withdrawals.

Roth IRAs are incredibly common. You can contribute $5,500 each year ($6,500 after 50 years of age) using after-tax dollars instead of tax-deductible contributions to a Traditional IRA.

If you are new to investing and saving, these are great starter accounts. However, the income and savings limits mean you’ll need to use other investment strategies to save for retirement.

2. Roth 401(k)

A Roth 401(k) allows you to grow and withdraw from your account without any tax implications.

Like the Roth IRA, contributions are made using after-tax dollars. However, you can contribute up to $18,500 until you are 50 when the number jumps to $24,500 (including a $6,000 catch-up allowance).

Tax-Free Investment Opportunities

Are you looking for places to send your money that don’t require any tax whatsoever?

Try these:

3. Municipal Bonds

Buying municipal bonds or investing in municipal funds allows you to save money and earn income without taxation.

The IRS doesn’t count income from these as a source of taxable income (though you do have to report it). However, you may be required to pay state taxes depending on your state of residency. Additionally, if you earn capital gains, then you must pay taxes on that figure.

Keep in mind that like all other investments, bonds come with risks. If the municipality defaults on its obligations (usually through bankruptcy) you can lose your investment.

4. Buy a Master Limited Partnership

master limited partnership (MLP) is a publicly traded partnership that provides a low-risk, low-tax, long-term investment.

Think of it as a hybrid organization: it’s a partnership and a corporation for tax benefits and liquidity.

Investors in MLPs receive tax-sheltered distributions, so you’ll generate a slow income stream over the long-term with limited tax liability.

5. Gifting Stock

Giving your money away is a simple way to earn an income and avoid tax. But doesn’t gifting your stock away mean you lose your asset? Not necessarily.

Let’s say you buy $10,000 in stock and earn $10,000. If you hold onto both, you’ll pay capital gains tax. Hold onto it long enough and hope for a lower tax over the long-term.

Alternatively, you can give the stock to a beneficiary. Sign it over less than a year after you buy it, and you’ll get to deduct the $10,000 you initially spent. If you allow it to sit for a year, you can deduct both the initial investment and the gains.

Tax-Free Savings Accounts

You know that a traditional savings account isn’t part of your journey towards sustainable retirement income. But health savings accounts are.

6. Health Savings Accounts

health savings account (HSA) is an incredible opportunity that everyone in the process of retirement planning should consider.

HSAs hold funds used to pay for medical expenses only. However, you don’t need to use it now. You can continue contributing money now, and then reimburse yourself for expenses (including Medicare premiums) during retirement.

Here’s how great these accounts are for your tax bill:

  • Contributions are tax-deductible
  • Growth is tax-free
  • Withdrawals are tax-free

You can only contribute $3,450 per person per year ($4,450 for those over 55). 

7. Restricted Property Trust (RPT)

A Restricted Property Trust (RPT) is a strategy that allows business owners to grow assets while reducing your income taxes. Rather than an individual account, these are business-focused and employer-sponsored. The ideal candidates for these accounts include:

  • C-Corps, S-Corps, LLCs
  • Private Companies
  • Physician Groups

The contribution minimums reflect this: it requires a minimum investment of $50,000 per year for a minimum of 5-years.

To set it up, a corporation creates two irrevocable trusts: the RPT and a Death Benefit Trust.

You then contribute to the Death Benefit Trust and make your minimum contributions to the RPT. The trust then uses the annual contribution to buy a cash value life insurance policy.

All RPT contributions are tax deductible and the growth of the cash value is tax-deferred. When the policy is distributed from the plan a tax is paid from the policy cash value.

Enjoy a Tax-Free Retirement

For many individuals, their greatest worry about retirement isn’t how to fill their newfound spare time, but if they will outlive their savings.

Taxes on retirement income take a chunk out of your savings and income after you already spent decades of your life paying in.

These seven options are just some of the tools available to those looking for a tax-free retirement income.

Are you a business owner with a qualifying corporation? You can use the RPT to minimize your tax obligations in retirement. Schedule a consultation to learn more.

The post 7 Ways to Receive Tax-Free Income for Retirement appeared first on Restricted Property Trust.

]]>
https://restrictedproperty.com/7-ways-to-receive-tax-free-income-for-retirement/feed/ 0
What Is A Restricted Property Trust? https://restrictedproperty.com/what-is-a-restricted-property-trust/ https://restrictedproperty.com/what-is-a-restricted-property-trust/#respond Mon, 03 Jun 2019 13:00:32 +0000 https://restrictedproperty.com/?p=1352 The post What Is A Restricted Property Trust? appeared first on Restricted Property Trust.

]]>

The Restricted Property Trust was created to help high-income earning business owners reduce income taxes and grow assets with sizable pre-tax contributions, tax-deferred accumulation, and tax-advantaged distribution. 

The Restricted Property Trust is gaining momentum as the vehicle of choice for high-income business owners to protect their income and grow their assets.

You may have heard about it and wondered if it was too good to be true. We’re here to tell you why it could be the game changer you’re looking for.

But…it’s NOT for everyone, and we’re going to take a look at why.

What Is a Restricted Property Trust?

Restricted Property Trust is designed to help business owners, physician groups, attorneys, athletes, and entertainers mitigate income tax. The main objective of a Restricted Property Trust is long-term, non-taxable cash growth and cash flow using a conservative asset class. 

An RPT can be established by an S Corporation, C Corporation, LLC, or Partnership. It cannot be established by a sole proprietorship or an entity taxed as a sole proprietorship.

Just to be clear, a Restricted Property Trust is not a qualified plan. This means contributions to an RPT do not impact contributions to any other qualified plan you might be making contributions to (e.g. 401(k), Profit Sharing Plan, Defined Benefit Plan, etc.).

An RPT may be used exclusively to benefit the owner(s) of a company. Each participant can choose their own level of contribution, independent of what other participants choose to contribute.

The annual RPT contributions by a business are fully deductible to the employer and around 30% of the contribution is included in the participant’s current taxable income.

Am I Eligible for an RPT?

So, as we said, a Restricted Property Trust is not for everyone. There are certain criteria to consider before establishing an RPT. To be eligible for an RPT you need to meet the following:

  • Established by a business entity other than a sole proprietor or entity taxed as a sole proprietor
  • Do not have to include any benefits to establish
  • Are able to contribute $50,000 or more per year for a minimum of 5-years

If you are unsure of your ability to meet the minimum payments for at least 5 years, then this is not the vehicle for you.

How Does a Restricted Property Trust Work?

So far, so good? Let’s learn more about how an RPT works.

The RPT contributions fund a life insurance policy for the participant(s).

The business pays a 100% deductible contribution to the trust on behalf of each of the participants in the plan. Around 30% of this contribution is classed as a taxable income to the participant.

Because a whole life insurance policy is being used to fund the RPT, the cash value growth is tax-deferred.

When funding is completed the insurance policy transfers from the trust to the individual participant(s). A withdrawal is made from the policy to pay any taxes owed when the policy is distributed.

Once the policy has been distributed from the trust, the participant is able to access tax-exempt cash flow in addition to maintaining the death benefit for named beneficiaries.

The reason that an RPT is not considered to be deferred compensation is that it is not subject to 409A and has a “substantial risk of forfeiture”. An RPT meets this requirement in 3 ways:

  • The plan must be funded for at least 5 years (all extensions must be in 5-year increments)
  • Funds are not accessible until the policy is distributed from the trust
  • If funds are not contributed in the determined amount each year, the contributed funds are forfeited to a public charity

It is these three features that meet the IRS terms for “substantial risk of forfeiture”. 

What Are the Benefits of a Restricted Property Trust?

  • High-income earning business owners are able to make significant contributions provided a business need for life insurance coverage exists and the amount of coverage needed is sufficient enough to maintain the desired level of contribution
  • The plan does not affect contribution to any qualified plans so you can continue to contribute to both without any impact on the other
  • 100% tax-deductible contribution to your business
  • The assets are protected from creditors while the plan is being funded
  • A Restricted Property Trust may provide earnings of 8% or more when compared to other fixed-income vehicles

What Else Do You Need to Know about RPTs?

Well, just like any other asset or tax deduction vehicle, you need to do your own due-diligence. Whether or not the RPT is a good fit for your business depends on your unique circumstances and cash flow.

That said, if you meet the requirements for a Restricted Property trust and you earn over $500,000 per year then the RPT is a strong option. Especially given recent talk of finding ways to increase the income tax for the highest bracket.

Finally, despite being a conservative asset class the returns are promising and the economic benefits of the plan are clear. 

For more information on Restricted Property Trusts or to schedule a consultation, please contact us.

Or, you can take a look at our comparison article on RPT vs Taxable Investments.

The post What Is A Restricted Property Trust? appeared first on Restricted Property Trust.

]]>
https://restrictedproperty.com/what-is-a-restricted-property-trust/feed/ 0
Restricted Property Trust versus a Taxable Investment https://restrictedproperty.com/restricted-property-trust-versus-taxable-investment/ https://restrictedproperty.com/restricted-property-trust-versus-taxable-investment/#respond Wed, 01 May 2019 13:00:33 +0000 https://restrictedproperty.com/?p=806 The post Restricted Property Trust versus a Taxable Investment appeared first on Restricted Property Trust.

]]>

A Restricted Property Trust (RPT) provides high-income earning business owners the opportunity to reduce income taxes and grow assets with sizable pre-tax contributions. An RPT also allows for tax-deferred accumulation and tax-advantaged distributions.

But, what good is a strategy if it doesn’t make economic sense?

In this post, we’re going to review the economic benefits of the Restricted Property Trust versus a taxable investment.

For those who are unfamiliar with the Restricted Property Trust, it allows for a business to make a 100-percent deductible contribution to the RPT. The participant typically recognizes 30-percent of the total contribution on their individual tax return in the form of an 83(b) election.

<div style="padding: 2%; background: #dbdbdb; border: 1px solid #ddd; font-color: #000000; font-size: 18px; #width: 100%; text-align: center; align: center;"><span style="color: #000000;">Download the </span><a href="#" class="backgroundcs" style="color: #4e679b;">Restricted Property Trust Case Study.</a> </div>

Once the contribution is made to the Restricted Property Trust, the trust purchases a whole life insurance policy. The whole life insurance policy is necessary to recognize the deduction. There must be a business purpose for the life insurance death benefit to qualify.

A whole life insurance policy is a conservative, fixed asset class. It is comparable to a Certificate of Deposit (CD), bond portfolio, etc.

“When we compare the RPT to a taxable investment it is important to keep in mind the taxable investment must earn an equivalent rate of return using a conservative, underlying asset class like the abovementioned.”

The whole life insurance policy provides several benefits:

  • It allows the plan to recognize the deduction
  • Provides tax-deferred growth and tax-advantaged withdrawals
  • The death benefit self-completes funding of the plan if death occurs
  • Works well in conjunction with buy/sell agreements and key man coverage
  • Includes a residual death benefit after all distributions have been made

In general, a unique component of any permanent life insurance policy is its tax efficiency. Permanent life insurance allows for tax-deferred growth, and the ability to access cash flow tax-free. And, in most scenarios, the death benefit is income tax-free.

Restricted Property Trust versus a Taxable Investment

To analyze a Restricted Property Trust versus a taxable investment we need to make a few assumptions:

  • 50-year old, male business owner
  • Wants to contribute $100,000 per year for 10-years
  • 45-percent tax rate

NOTE: The Restricted Property Trust can only be set up by an established business entity: S-Corp, C-Corp, LLC, or LLP (sole proprietors or LLCs taxed as a sole proprietor are not eligible). In addition, in order to establish a plan, the business entity must commit to a minimum annual contribution of $50,000 or more for a period of at least 5-years.

To understand the economics of a Restricted Property Trust versus a Taxable Investment we’re going to break it down into the following three phases:

  • Phase 1 – Funding Period
  • Phase 2 – Policy Distribution and Deferral
  • Phase 3 – Withdrawal Period

Phase 1 – Contribution Period

During Phase 1 the participant is going to contribute $100,000 per year for 10-years to the Restricted Property Trust.

RPT Phase 1

Since the “business owner/participant” is going to recognize $30,000 of income on their personal return it is important to take this into consideration for purposes of our comparison. In order to net the $30,000 taxable amount, the participant will owe taxes of $24,545. Therefore, to net a $100,000 contribution to the Restricted Property Trust, the participant will need to gross $124,545.

Now that this has been established, if the participant makes the decision to not participate in the Restricted Property Trust, and instead chose to pay taxes on $124,545 they would recognize net income of $68,500.

The result is a contribution to the Restricted Property Trust of $100,000 and $68,500 into a taxable investment. The goal of completing this analysis is to determine what rate of return the taxable investment would have to earn to equal the cash flow performance of the Restricted Property Trust.

Restricted Property Trust Funding Period

Here you will see the $100,000 being contributed to the Restricted Property Trust, and $68,500 being contributed to the Taxable Investment Comparison. We have assumed an 8-percent rate of return for the taxable investment comparison.

You will notice the cash value of the Restricted Property Trust whole life insurance policy has $1,089,918 versus the $874,701 in the Taxable Investment Comparison at the end of Year 10. In addition, the Restricted Property Trust provided an initial death benefit of $3,305,650 that grew to $4,288,670 by year 10.

Phase 2 – Policy Distribution and Deferral

In Phase 2 the whole life insurance policy is distributed from the Restricted Property Trust to the participant. At distribution, the participant will recognize income taxes on a portion of the cash value.

We are going to assume taxes owed on the distribution are going to be paid in the form of a distribution from the policy. We are also assuming the participant chooses to defer any additional income from the policy for five more years until they turn age 66.

Restricted Property Trust Deferral

First, you’ll notice the distribution from the policy in Year 11 for $225,126. This amount represents the taxes that will be owed on the distribution of the policy from the Restricted Property Trust assuming a 45-percent tax rate. This amount is withdrawn from the policy tax-free to the participant.

Second, we have reduced the death benefit of the policy from $4,288,670 in Year 10 to $1,876,524 in Year 11. This allows the cash value of the policy to grow at a faster rate. Cash value growth in a life insurance policy is tax-deferred. You will also notice that as the cash surrender value grows so too does the policy death benefit.

Phase 3 – Withdrawal Period

During the withdrawal period, the participant receives tax-free distributions from the policy. In this example, we have assumed the participant begins withdrawals at age 66. Nothing says the participant must take withdrawals at age 66.

When the policy is distributed from the Restricted Property Trust the participant can choose when they would like to receive distributions. And, unlike a qualified plan, the participant is not required to begin minimum distributions beginning at age 70 1/2.

Withdrawals from a Restricted Property Trust

In this example, beginning at age 66, the participant receives net income of $88,903 per year for 20-years from the Restricted Property Trust for a total of $1,778,060.

Under the taxable investment, assuming an 8-percent rate of return, the participant receives net income of $88,903 for 16-years and $68,816 in year 17. The total net income distributed from the taxable investment is $1,491,264.

Each time income is taken from the policy the death benefit is reduced. But, in addition to the income received, the policy still has a $360,119 death benefit. The remaining death benefit will be paid to the insured’s beneficiary at their death income tax-free.

<div style="padding: 2%; background: #dbdbdb; border: 1px solid #ddd; font-color: #000000; font-size: 18px; #width: 100%; text-align: center; align: center;"><span style="color: #000000;">Download the </span><a href="#" class="backgroundcs" style="color: #4e679b;">Restricted Property Trust Case Study.</a> </div>

It is important to keep the life insurance coverage in force after all the withdrawals have been taken to avoid a large portion of the distributions from the policy from becoming taxable.

What’s the Real Rate of Return the Taxable Investment would have needed to earn to keep up with the Restricted Property Trust?

For the taxable investment to have kept up with the cash flow performance of the Restricted Property Trust it would have needed to earn just under 9.17-percent.

RPT Real Rate of Return

For participants in states with high-income taxes, the rate of return needed can exceed 9.17-percent. In some cases, it can be as high as 12 to 13-percent equivalent rate of return. The higher the tax rate the larger the rate of return required for a taxable investment to match the performance of the Restricted Property Trust.

Again, it is also important to remember we are using a conservative, fixed asset class. If your fixed asset portfolio is earning more than 9.17-percent, then it probably makes sense to not participate in a Restricted Property Trust.

But, you should also remember the Restricted Property Trust provides a rather significant death benefit. The value of this should not be overlooked.

What Did the Restricted Property Trust Accomplish that the Taxable Investment did not?

The Restricted Property Trust reduced the participant’s tax rate on plan contributions from 45-percent to 15.4-percent. It also provided a $100,000 annual deduction for the business. In the event death was to occur, RPT provided a death benefit to the participants beneficiary.

Lastly, the Restricted Property Trust provided $1,778,060 of tax-free income to the participant.

The post Restricted Property Trust versus a Taxable Investment appeared first on Restricted Property Trust.

]]>
https://restrictedproperty.com/restricted-property-trust-versus-taxable-investment/feed/ 0
7 Ways Business Owners Can Reduce and Defer Income Taxes in 2019 https://restrictedproperty.com/7-ways-business-owners-can-reduce-and-defer-income-taxes-in-2018/ https://restrictedproperty.com/7-ways-business-owners-can-reduce-and-defer-income-taxes-in-2018/#respond Mon, 01 Apr 2019 13:00:17 +0000 https://restrictedproperty.com/?p=794 The post 7 Ways Business Owners Can Reduce and Defer Income Taxes in 2019 appeared first on Restricted Property Trust.

]]>

In 1789 Benjamin Franklin wrote in a letter “…in this world nothing can be said to be certain, except death and taxes.” Almost 230-years later those words continue to hold true.

With half the year already behind us, the time for business owners to start thinking about effective ways to reduce taxes begins now. As a business owner, you have access to more options than individuals when it comes to tax planning.

And why shouldn’t you?

You create jobs, take risks, and are ultimately responsible for your own success or failure.

With proper planning, you can achieve significant tax savings. In fact, meeting with your CPA, tax attorney, or other advisors prior to year-end can result in a huge benefit for you and your business.

It is important to start the process sooner, rather than later. This will give you time to evaluate your options, understand them, and make a decision based on what’s most important to you. Since most strategies require establishing and funding a plan prior to your company’s year-end, time can become your biggest adversary.

Before we get into ways to reduce and defer income taxes it is important to realize one size does not fit all. Each business and its owner(s) are unique to themselves. And, while the strategies we review below are meant to provide you with a general understanding of the options available, they may not be suitable for your specific needs.

Traditional Retirement Plan Options

Qualified retirement plans are the most common way for business owners to reduce current income and defer tax liabilities. They allow for tax-deductible contributions, deferred taxes on the growth of the assets, and ordinary income tax on distributions during retirement.

There are a few types of qualified retirement plans for business owners to consider. Each with there own pros and cons. They include:

SIMPLE IRA

A SIMPLE IRA costs very little to setup and administer. SIMPLE stands for Savings Investment Match Plan for Employees. It must be established by an employer (which includes sole proprietors and partnerships).

A SIMPLE IRA requires the employer to match eligible employees contributions of at least 3% of the employee’s salary. However, the employer can reduce the matching amount to 1-percent two out of every five-year period.

Unlike most other employer-sponsored retirement plans, participants vest 100-percent of the employer matching contribution immediately.

Employees can contribute 100-percent of their income up to $12,500 (in 2018) or $15,500 if the employee is over age 50.

A SIMPLE IRA is best for business with a small employee base with an owner interested in starting a plan for themselves and their employees.

SEP IRA

Like a SIMPLE IRA, SEP IRAs are less costly to establish than other plans, like a 401(k). SEP stands for Simplified Employee Pension.

A SEP IRA allows for a contribution of 25-percent of total compensation or $55,000 (in 2018), whichever is less. Contributions to a SEP IRA are made entirely by the employer. Employers must contribute the same percentage of salary to eligible employees as they do for themselves.

Eligible employees include employees 21 or older employed by you for three of the last five years earning $600 or more in the past year.

A SEP IRA is best for self-employed individuals or business without a lot of employees.

401k

A 401(k) is an employer-sponsored retirement plan that allows employees to make pre-tax contributions for their retirement savings.

Participants can contribute up to $18,500 for individuals under age 50, and $24,500 for individuals age 50 and older. Participants can contribute 100-percent of their salary to a 401(k) plan.

Most commonly, employers will choose to match 100-percent of an employee’s contribution up to 6-percent of the employee’s salary. However, the employer is not required to match at all.

Any contributions made by an employer will often require the employee to “vest”. This requires the participating employee to work for the employer for a pre-determined number of years prior to being eligible to receive the matched portion of the contribution. Employers have a few different options when establishing an appropriate vesting schedule.

A 401(k) is generally most suitable for a business with 20 or more employees.

Profit Sharing Plan

A Profit Sharing Plan is a discretionary, employer-sponsored retirement plan. Contributions to a Profit Sharing Plan are made by the employer. The company can choose on annual basis to contribute to a Profit Sharing Plan.

While an employer is not required to fund a Profit Sharing Plan every year, there is a maximum amount they can contribute in the years they do decide to fund. The maximum contribution to a profit sharing plan is the lesser of 100-percent of compensation or $55,000 in 2018.

There are several methods for deciding how much each employee receives in the form of a contribution. Depending on the goals of the owner(s), an administrator can design a profit sharing plan that is most appropriate.

Like a 401(k), an employer can establish a vesting schedule to require employees to work a predetermined period of time in order to be eligible to receive contributions made by the employer.

A profit sharing plan can require a significant amount of administration. Working with a plan administrator who understands the ins-and-outs of administering a profit sharing plan can be a great benefit.

A profit sharing plan can be a great vehicle for businesses of any size.

Defined Benefit Plan

A defined benefit plan differs greatly from the other qualified plan retirement options. A SIMPLE IRA, SEP IRA, 401(k), and Profit Sharing Plan are defined contributions plan. A defined contribution plan tells you how much and what percentage of your income you can contribute to the chosen plan.

A defined benefit plan provides a guaranteed annual benefit when you retire. The amount received is based on various factors to include age, salary, and years worked. Benefits from a defined benefit plan are based on a formula that will provide for a specific dollar amount for each year you work or a percentage of earnings.

Depending on several factors a business owner can usually contribute much more ($100,000+) to a defined benefit plan than a profit-sharing plan. The most common factors include age and compensation.

Contributions to a defined benefit plan are made by the employer and are almost always tied to a vesting schedule.

A defined benefit plan is not a fit for all companies. Depending on the goal and objectives of the owner(s) it would be our recommendation to work with an administrator who can provide a proposed plan. From there, you can determine if a defined benefit plan makes sense for you and your organization.

Restricted Property Trust

A Restricted Property Trust is an employee benefit plan established by a business entity (S Corp, C Corp, LLC, or LLP). A Restricted Property Trust allows employers to make a fully-deductible contribution with tax-deferred growth and tax-advantaged distributions.

The plans main objective is to provide long-term, tax-favored accumulation and cash flow. What makes the Restricted Property Trust unique is the owner is not required to include or make any contributions for employees. In addition, contributions to an existing qualified retirement plan does not impact your ability to establish a Restricted Property Trust.

The downside of a Restricted Property Trust is the employer must be able to contribute a minimum of $50,000 per year for at least 5-years. However, for those interested in a Restricted Property Trust, contributions can be significantly higher, if desired.

A Restricted Property Trust is for business owners with income of $500,000 or more.

Captive Insurance Companies

A captive insurance company is a wholly owned subsidiary of a corporation. The captive insurance company is in a jurisdiction with captive laws. Allowing the captive insurance company to function as a licensed insurer.

The captive then insures the risks of the parent corporation and any subsidiaries it is going to underwrite. The captive analyzes risks, designs policies, and determines and accepts the premiums necessary to insure those risks.

The parent company and subsidiaries make tax-deductible premium payments to the captive insurance company. The captive then invests premium payments in order to payout any future claims.

Captive Insurance Companies can be very expensive to establish and maintain. For businesses with a large amount of risk interested in significant pre-tax contributions, a Captive Insurance Company can be an excellent choice.

Conclusion

As a business owner, you have several options to reduce your taxable income. These options range from smaller levels of contributions to contributions with the potential to exceed 7-figures.

What’s important to note, is most of these strategies have other factors that must be taken into consideration – from employees, salaries, risk, etc. It’s because of these factors you need to take steps NOW to reduce and defer your income taxes in 2018.

It starts by taking action. Only then will you put yourself in a position to take advantage of one or some of these plans prior to year-end.

The post 7 Ways Business Owners Can Reduce and Defer Income Taxes in 2019 appeared first on Restricted Property Trust.

]]>
https://restrictedproperty.com/7-ways-business-owners-can-reduce-and-defer-income-taxes-in-2018/feed/ 0
Restricted Property Trust: Background & History https://restrictedproperty.com/restricted-property-trust-background-history/ https://restrictedproperty.com/restricted-property-trust-background-history/#respond Mon, 04 Mar 2019 13:00:56 +0000 https://restrictedproperty.com/?p=713 The post Restricted Property Trust: Background & History appeared first on Restricted Property Trust.

]]>

A Restricted Property Trust is an employee benefit plan for high-income earning business owners and key employees.

The first Restricted Property Trust plan was implemented in 2001. Since then, the strategy has a 100-percent successful track record with the Internal Revenue Service, including audits that have occurred at the highest level agreeing (or conceding) with the RPT’s deductibility.

The reason for this successful track record is the plan was built to defend.

A Restricted Property Trust (RPT) allows a qualifying business entity (S-Corp, C-Corp, LLC (not taxed as a sole proprietor), and most Partnerships) to make a 100-percent, fully-deductible contribution to an RPT.

When a business owner establishes a Restricted Property Trust, the RPT purchases a whole life insurance policy on the participant. The premium is deducted under Internal Revenue Code Section 162 and must be equal to the amount of premium necessary to fund the current death benefit.

<div style="padding: 2%; background: #dbdbdb; border: 1px solid #ddd; font-color: #000000; font-size: 18px; #width: 100%; text-align: center; align: center;"><span style="color: #000000;">Download the </span><a href="#" class="backgroundcs" style="color: #4e679b;">Restricted Property Trust Case Study.</a> </div>

The participant will recognize anywhere from 30 – 40% of the total contribution on their individual return under an Internal Revenue Code Section 83(b) election covering restricted property. Because of this, it is exempt from Internal Revenue Code Section 409A, which means restricted property is never considered a plan of nonqualified deferred compensation.

What Is Restricted Property?

It’s fair to say most people have never heard of restricted property. The most common form of restricted property from a tax perspective is stock. But, for purposes of this example, we’ll use a different analogy.

Imagine you decide to hire me as one of your employees. Behind your office building, you own a garage worth $30,000. You say to me, “You seem like a nice guy. If you come work for me for 5-years I will give you the garage.”

Unbeknownst to many, we just created a plan of restricted property. With the creation of restricted property, I as the employee, have a few tax choices. One of which is to pay tax on the fair market value of the garage today even though I’m not guaranteed to be an employee in 5-years.

If I get fired in 2-years I don’t get to keep the garage, and I wouldn’t be able to recoup the taxes I paid up front.

Most people would think why would anybody ever do that?

Well, if I work for you for 5-years, and you hand me title to the garage and a shopping mall goes up across the street increasing the value to $100,000, I wouldn’t have to pay taxes on it because I already did. When I decide to sell the garage, I would owe taxes at long-term capital gains and not ordinary income.

From a tax perspective, that’s how restricted property works, and that seems to make sense to most people.

With that said, when the Restricted Property Trust was designed it was known that if the IRS came knocking on the door we could not use the garage example and say our very wealthy client who is a 100-percent shareholder might fire himself.

That’s not a good defense.

However, the tax law states another condition may apply. If the property is subject to a substantial risk of forfeiture (stated differently – the individual could lose the property) – then the 83(b) election would be upheld.

A Restricted Property Trust requires a minimum 5-year funding commitment of $50,000 or more, resulting in a substantial risk of forfeiture.

Failure to make a contribution results in the liquidation of the trust assets (e.g. cash value). The assets are then distributed to a public charity designated by the participant when the trust is established.

The word substantial in the tax code means 33 to 50-percent. However, it would be very difficult to explain 33 to 50-percent to an IRS field agent.

The Restricted Property Trust defines substantial as an absolute 100-percent to remove any questions of how “substantial” may be defined or interpreted.

Once the plan is established the cash value cannot be accessed during the funding period. There are no loans from the trust or the policy. And, you can’t use the policy as collateral. If you could it would be taxable.

If the participant passes away while funding the Restricted Property Trust, the death benefit is paid to the trust. The proceeds are then distributed to the trust beneficiaries designated when the trust was established.

In most cases, all clients really care about is a deduction. They are not necessarily death benefit motivated. The tax deduction is what motivates them to do it. Once they own the life insurance many become emotionally attached to the death benefit and are usually really glad they did it.

<div style="padding: 2%; background: #dbdbdb; border: 1px solid #ddd; font-color: #000000; font-size: 18px; #width: 100%; text-align: center; align: center;"><span style="color: #000000;">Download the </span><a href="#" class="backgroundcs" style="color: #4e679b;">Restricted Property Trust Case Study.</a> </div>

Once the plan is established the cash value cannot be accessed during the funding period. There are no loans from the trust or the policy. And, you can’t use the policy as collateral. If you could it would be taxable.

If the participant passes away while funding the Restricted Property Trust, the death benefit is paid to the trust. The proceeds are then distributed to the trust beneficiaries designated when the trust was established.

In most cases, all clients really care about is a deduction. They are not necessarily death benefit motivated. The tax deduction is what motivates them to do it. Once they own the life insurance many become emotionally attached to the death benefit and are usually really glad they did it.

Once the participant completes funding of the Restricted Property Trust the policy is distributed from the trust to the participant. A tax is then owed on a portion of the cash value. Payment for the tax is typically done by taking a withdrawal from the policy. This allows the participant to avoid paying tax using other personal assets.

The impact of the withdrawal from the life insurance policy is negligible. In most cases, the participant will continue to allow the cash value of the policy to grow for a period of five years or more to take advantage of the favorable tax environment life insurance provides.

When the participant decides to take distributions from the policy they are TAX-FREE.

In many cases, an individual who utilizes a Restricted Property Trust would have to earn at least 8-percent in an after-tax investment to obtain equivalent results to the RPT. Since we are using a very conservative (and boring) whole life insurance policy, you would technically have to be able to earn 8-percent in a similar asset class like a bond or CD.

A Restricted Property Trust is one piece of the puzzle. It is never going to be the overall puzzle. While the plan itself offers a number of tax benefits, the strategy itself is more a mechanism of deferral than deduction.

Simply stated the Restricted Property Trust provides a tax deduction, tax-deferral, and tax-free withdrawals using a very conservative asset with very little volatility.

DISCLOSURE: Any tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party and transaction or matter addressed herein.

The post Restricted Property Trust: Background & History appeared first on Restricted Property Trust.

]]>
https://restrictedproperty.com/restricted-property-trust-background-history/feed/ 0