Florida Estate Planning and Probate Law Blog focused on recent case law and planning ideas.

INHERITED IRAS ARE NO LONGER PROTECTED FROM CREDITORS

♠ Posted by Marc Soss at Thursday, October 23, 2014
In the case of Clark v. Rameker, the Supreme Court ruled that an inherited IRA was not considered a protected retirement funds and was subject to creditors’ claims if the beneficiary filed for bankruptcy. The case originated from a dispute in Bankruptcy Court over whether an inherited $300,000 IRA qualified as a protected retirement account. The Supreme Court, in reliance on the U.S. Tax Code, determined that since the beneficiary was required to withdraw a minimum amount of money from the account each year, even though they had not reached the age of retirement, the account was not a protected retirement fund.

Why is this important?

The ruling means that an inherited IRAs will now longer be considered a protected asset and will be available to satisfy a beneficiaries creditor claims.

What can I do?


Account owners should consider naming a standalone Trust as the beneficiary of the IRA. The Trust will restrict the beneficiary’s access to the funds and keep them protected from their creditor claims.


How can I do it?

Upon the retirement account owner’s death the remaining assets will pass into a third-party trust and not directly to the beneficiary. Since the third-party trust was not created by the beneficiary, is not funded with their own money, and cannot be modified by them, it will enjoy protection from the claims of the beneficiary’s creditors.