Concerned an Inherited IRA Could Be Targeted by Creditors?
If you are in a position to leave assets to your loved ones, you probably have questions about the most effective way to do that. There are a variety of issues to consider, such as the tax advantages of various options. Just as important, however is your assessment of each beneficiary’s needs. One family member might appreciate a lump sum in cash to use as a nest egg. Another may be in a constant struggle with debt, so an asset that would be protected from creditors might be a better choice.
One popular asset with some built-in protection from creditors is your IRA. If you declare bankruptcy, for example, your retirement accounts are off-limits to creditors, and people have assumed that those creditor protections extended to its beneficiary. Unfortunately, a recent Supreme Court decision in the case of Clark v. Rameker has called that into question.
Don’t rely on the creditor protections of an IRA passing to your spouse or family. In Clark v. Rameker, the Supreme Court ruled that IRAs can lose that protection when they are inherited. To protect an individual retirement account from a loved one’s creditors, consider setting up an IRA trust and designating it as the beneficiary of your IRA.
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We can help. Attorney Jill Hanlon has been advising and representing Nevada clients in estate planning and probate for more than 17 years. She can explain how an IRA trust could provide income over time while remaining off-limits to creditors. To set up a free consultation, call the Law Office of Jill Hanlon in Las Vegas at 702-666-8433 or use our online contact form now.
An IRA Trust Can Provide Safe, Controlled Income
As long as it is set up correctly, an IRA trust can not only protect your loved one’s inheritance safe from creditors, but also extend the IRA’s tax advantages. With a properly drafted IRA trust as the beneficiary, the required distribution timetable could potentially be set to your heir’s expected life span. That could mean many additional years of tax-deferred or tax-free growth for those IRA funds. In addition, you can set terms in the trust itself to ensure the funds are distributed according to certain criteria.
There Are a Number of Traps to Avoid
If the IRA trust is not set up properly, your heir could end up with a hefty tax bill — or your IRA might be distributed under the terms of your will instead of to the heir you intended. Never use a boilerplate trust form to set up an IRA trust.
We generally recommend setting it up as a standalone trust instead of trying to add it to your living trust or another estate planning document. The requirements for IRA trusts are quite specific, and adding them to another trust could render it invalid.
Contact the Law Office of Jill Hanlon Now for a Free Consultation
Setting up an IRA inheritance trust is not costly, and your first consultation is free and entirely confidential. Work with experienced estate planning lawyer Jill Hanlon: Call 702-666-8433 or contact us online now.