Ninth Circuit Offers New Guidance on Private Retirement Plans

Jacob Stein Esq.
August 3, 2009 — 1,343 views  
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Earlier this summer, the Ninth Circuit Court of Appeals released an opinion that sheds some light on the level of protection granted by the California exemption for private retirement plans.

In Cunning v. Rucker, the debtor, to avoid having the creditor reach his assets, established several retirement plans and proceeded to overfund the plans for several years.  The overfunding was intentionally not reported to the IRS (apparently to avoid overfunding penalties).

The Ninth Circuit stressed that the California exemption for retirement plans applies only if the primary intent of the plan is to provide for retirement.  In the instant case, the court found that the debtor used the plan primarily to shield assets from a creditor, and the exemption found in CCP 704.115(b) does not apply.

Previously, it was believed that if no withdrawals or loans were made from the plan, that established the retirement intent.  This is no longer true.  The Ninth Circuit direct us to look at the totality of circumstances to determine the primary intent.

It is interesting to note that overfunding applies only in the context of an ERISA-qualified retirement plan.  If the plan is not ERISA-qualified it is impossible to overfund.  (Although the tax deferral benefits of ERISA are also lost.)

It is evident from this case that the debtor did a poor job of presenting his intent to the court.  A good asset protection attorney would have been able to properly structure the plan to avoid the successful arguments made by the creditor in this case.

For more technical guidance on the use of private retirement plans and other asset protection structures, visit www.maximumassetprotection.com.

Jacob Stein Esq.

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Mr. Stein is a partner with the law firm Boldra, Klueger and Stein, LLP, in Los Angeles, California. The firm's practice is limited to asset protection, domestic and international tax planning, and structuring complex business transactions. The firm's goal is to provide the highest quality legal work that is usually associated with only the biggest law firms, in a boutique firm setting. Jacob received his law degree from the University of Southern California, and his Master's of Law in Taxation from Georgetown University. Mr. Stein has been accredited by the State Bar of California as a Certified Tax Law Specialist and is AV-rated (highest possible rating) by Martindale-Hubbell.