Beware: Recent Case Law Says Creditors Can Get to Inherited IRAs

Many of you may believe that IRAs are creditor protected and you are half right. An IRA or 401(k) and 403(b)s have creditor protection. This is not the whole story though. Due to a Supreme Court decision in the last decade, creditors can now get access to Inherited IRAs. If you are going to receive an inheritance and a significant portion is from an IRA or other tax deferred type of asset, you should talk to the grantor about possibly reviewing their estate plan.

What can a review of their estate plan do to protect Inherited IRAs?

Inherited IRAs can still be protected from lawsuits, divorces, and creditors by creating what is known as a Standalone Retirement Trust. This type of trust is set up to receive tax deferred accounts in a tax friendly way that protects assets.

A good Stand-Alone Retirement Trust can:

  • Help blended families by allowing the first spouse to pass away to direct assets to his or her spouse while he or she is living. Once the second spouse passes, these tax deferred assets can go to whomever the first spouse intends them to go to. If this is not set up with a Stand-Alone Retirement Trusts relatives can often be inadvertently disinherited.

  • Protects beneficiaries from lawsuits due to car accidents or slip and falls, etc.

  • Protects beneficiaries if they get a divorce

  • Protects beneficiaries from themselves if they are problem beneficiaries.

  • Allows grantors to gift these types of assets to special needs beneficiaries without sacrificing their government assistance.

If you are interested in finding out how a Stand-Alone Retirement Trust might be able to benefit you or your family, please call us at (951)304-3431.

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