Strategy called Restricted Property Trust
Due to the history of the industry and the abuses, people were skeptical. After understanding of the mechanics it became clear that it was different than the “other” plans. Restricted Property Trust
The Restricted Property Trust (RPT) is designed for high-income earning business owner physicians and key employees. An RPT provides long-term, tax-favored cash accumulation and cash flow utilizing a conservative whole life insurance policy.
Is a Restricted Property Trust Right For You?
A Restricted Property Trust can only be established by an S-Corp, C-Corp, Limited Liability Company (LLC), or Limited Partnership.
Sole proprietors cannot adopt a Restricted Property Trust, which includes LLCs taxed as a sole proprietorship. Contributions to a Restricted Property Trust are a 100-percent deductible contribution under Internal Revenue Code (IRC) 162 to the business. The participant will typically recognize 30-percent of the total contribution on their individual return in the form of an 83(b) election.
There are two primary factors to consider prior to establishing a Restricted Property Trust.
First, the minimum annual contribution is $50,000.
Second, there is a mandatory 5-year funding commitment.
Following completion of the 5-year commitment, the participant has the option to continue funding for an additional 5-years.
A key provision of the Restricted Property Trust is the employer is required to make the annual contribution in accordance with the pre-established funding period. In the event the employer is not able to make the contribution during the funding period, the policy is surrendered to the trust. The proceeds are then distributed to a public charity designated by the participant when the trust is established.
Contributions from the employer to the Restricted Property Trust are used to purchase a whole life insurance policy. Whole life insurance is a low-risk asset class like a certificate of deposit (CDs), money market, or treasuries.