Birth of the PGI IRA Trust

The IRA Trust is a relatively new tool being used for the individual who is interested in a self-directed IRA. It’s gaining attention, and should. While there are many benefits of the IRA Trust vs. the IRA LLC, this page is not making a comparison of the two products. This page is intended to explain how PGI came to offering the IRA Trust.

What are we covering here?

  1. History of the IRA LLC (a very abbreviated version);
  2. Use of an IRA LLC;
  3. Birth of the PGI IRA LLC; and,
  4. IRA Trust vs. IRA LLC — Which is Better? (hint: PGI establishes both)

History (abbreviated) of the IRA LLC

With the experiences of the fast-paced real estate market of the early 2000s, clients became much more interested in having checkbook control of their IRA retirement account funds. The IRA LLC was, and still is in most cases, considered the instrument of choice (or only option) in achieving checkbook control of their IRA funds. The IRA LLC structure provides the IRA account holder:

  1. more control;
  2. saves time in making time-sensitive investments; and,
  3. possibly (usually) reduces IRA annual fees over time

Use of an IRA LLC

In the IRA LLC structure, the client opens an IRA account through an IRS-approved IRA custodian who holds the IRA. Unlike a Solo-K where the Trustee (you) can open the account without the requirement of an IRA, the IRA must be “held” through an IRS-approved custodian.

Through a properly-structured LLC, the IRA will capitalize the LLC with the IRA (only) funds. Typically, the IRA account owner will designate themselves as the manger of the LLC. The IRA is the actual member (owner) of the LLC, with the account owner (or their designee) making the day-to-day investments decisions in the role as the manager of the LLC.

Without question, it is vital that the LLC not enter into any IRS prohibited transactions.

Life would appear to be good!

However, one always should exercise caution in the investment decision-transaction process, and review their LLC investment choices with a tax or legal professional. Rarely is the “structure” associated with the IRA LLC or IRA Trust an issue…the documents are written in compliance with IRS regulations, and are accepted by the custodians that accept the IRA LLC or IRA Trust structure. Unfortunately, the concern will typically boil down to the investment actions and activities of the IRA account owner and IRA LLC manager….uh, you!

To illustrate this point (and liking TV commercials way too much!), there was a famous beer commercial which proclaimed, “with great taste, comes great responsibility.” One could modify this saying slightly and apply it to a self-directed IRA. It could be said with, “with great investment freedom, comes great responsibility.” No truer statements could be made, whether you are drinking beer, self-directing your IRA investments, or both!

Birth of the PGI IRA Trust

Did PGI develop the concept of the IRA Trust?

Absolutely not!

What Triggered the Interest in the IRA Trust?

I wish I could say that there was an epiphany with the IRA Trust. I liked the IRA LLC structure (as long as people take their responsibility seriously to comply with IRS PT regulations), but genuinely did not like the fees associated with some state LLCs. For some, the LLC fees are very reasonable, for others not. There is no state worse than California with LLC fees. So, while the IRA Trust is initially more expensive to establish than the IRA LLC, it will save the client money in the long run IF they are in one of these high cost states. Adding to the allure of the Trust…there are some benefits of the Trust outside possible fee savings.

Introduction to Frank Selden

Frank had a great story. Was a career banking professional and at the age of 40 (or 40ish) went to law school at the University of Washington. I was impressed as UW is a great academic institution, but more impressed that, at age 40, who goes to law school! Well, Frank Selden did!

Frank is an attorney who specializes in retirement plan issues, Trusts and the like. I liked him more as he has the same sarcastic humor as I do and has a good sampling, of all things, lawyer jokes! The good ones!

I was introduced to attorney Frank Selden for a conversation on another topic. What I realized during the conversation was that he knew his stuff. I threw out the question: “Frank, have you ever heard of an IRA Trust? I want something to offer clients in addition to the IRA LLC. Can you put it together and do you see any IRS issues?” He responded something to the effect of “interesting”. Needless to say…the PGI IRA Trust gave birth shortly thereafter.

IRA Trust vs. IRA LLC — Which is Better (Hint: it is situational)

The “hint” should give the answer away to you. If I felt the IRA LLC was the “be all-end all”, I wouldn’t offer the IRA Trust. So, when I am asked which is better, there is not a canned response…it depends on your situation. Please review the pros and cons of both the IRA LLC and IRA Trust.

As an example: If you are living in Colorado where the cost to establish and maintain an LLC is very inexpensive, you would probably elect the IRA LLC unless you liked the other benefits the IRA Trust presented. Similarly, if you were in a very high cost LLC state such as California, regardless of the benefits of the Trust, you almost assuredly would choose to establish the IRA Trust over the IRA LLC. So, as we said…it depends.