In June of 2013, the Supreme Court ruled in Clark v. Rameker that an inherited IRA is no longer a retirement account once the beneficiary withdraws any amount from their inherited IRA. Beneficiaries are no longer protected from creditors under federal bankruptcy law. The foundation of the case stems from Heidi Heffron-Clark who received an inherited IRA from her mother in 2001. Once she filed for bankruptcy in 2010, she was unable to protect that inherited account from her creditors.
Over 82 million households in the United States have some form of IRA’s, whether it is a traditional IRA, Roth, Employer Sponsored or combination of three.
Individuals should consider setting up a trust as the IRA’s beneficiary; thereby limiting the dependent’s financial uncertainty. Trusts have the ability to better protect assets, especially against creditors if the beneficiary is in bankruptcy proceedings. Individuals should consult their tax professional to discuss which type of trust will best satisfy their needs and goals.
GBQ offers various succession planning options with certified experienced professionals who can assist you in establishing this protection. You have worked hard for your money; ensure it is protected for generations long after you are gone.