U.S. Supreme Court Rules Inherited IRAs are Not Protected from Creditors
by AminovLaw
 The Law Blog: The Robinson Law Firm
Jul 28, 2014 | 49 views | 0 0 comments | 5 5 recommendations | email to a friend | print | permalink
On June 12, 2014, the U.S. Supreme Court—in a unanimous decision—ruled that Individual Retirement Accounts (IRAs) inherited by anyone other than a spouse are not retirement funds and therefore are not protected from the beneficiary’s creditors in bankruptcy.

 

The reasoning is, because the beneficiary cannot make additional contributions or delay distributions until retirement, it is not a retirement account. There is, in fact, nothing to prevent a beneficiary from withdrawing funds, or even clearing out the account, at any time. As a result, these funds must also be available to satisfy the beneficiary’s creditors during bankruptcy. Following the same logic, an inherited IRA is also subject to divorce proceedings.

 

This is not great news for parents who have planned to leave large IRA accounts to their children or grandchildren, with the desire to continue the tax-deferred earnings for many more years over their lives.

 

Fortunately, there is a solution. By using a trust as the beneficiary of the IRA, you can continue the tax-deferred earnings over a beneficiary’s life expectancy and protect your hard-earned savings from the beneficiary’s creditors.

 

The Key Takeaways

  • Inherited IRAs are not protected from the beneficiary’s creditors in bankruptcy.

  • Using a trust as beneficiary can continue the tax-deferred earnings over a beneficiary’s life expectancy and protect these savings from the beneficiary’s creditors.

 

Using a Trust as Beneficiary of an IRA

Using a trust as beneficiary of an IRA or retirement plan account will let you use the oldest beneficiary’s life expectancy to stretch out the tax-deferred growth. It will let you keep control over when the beneficiary receives distributions, and can protect the asset from the beneficiary’s creditors (including bankruptcy), predators (those who may have undue influence on the beneficiary), irresponsible spending, and divorce proceedings. You can even provide for a beneficiary with special needs without jeopardizing government benefits.

 

In order for the trust to qualify, it must meet certain requirements, including that a) it must be valid under state law; b) it must be irrevocable not later than the death of the owner; c) all beneficiaries of the trust must be individuals (no charities or other non-persons) and they must be identifiable from the trust document; and d) a copy of the trust document must be provided to the account custodian by a certain date.

 

Because the trust’s oldest beneficiary’s life expectancy must be used to determine the distributions, many people opt for a separate share for each beneficiary or even a separate trust for each beneficiary. These are called “stand alone retirement trusts” because they are created solely for retirement plan and IRA assets. (A revocable living trust would still be used for other general estate planning purposes.)

 

What You Need to Know

Planning for IRAs and other tax-deferred savings plans is not something to be taken lightly and not a task to try to master yourself. The laws are complicated, and a simple mistake can be disastrous and irreversible. Because there is often a lot of money involved with these plans, it pays to work with an estate planning attorney who has considerable experience in this area.

 

Important Notes

  • A conduit trust requires that all distributions from the IRA or retirement plan must be distributed to the trust’s beneficiary(ies). (The trust is simply a “conduit” from the plan to the beneficiary.) These distributions are not protected from a beneficiary’s creditors and have no asset protection.

  • With an accumulation trust, the distributions may be kept within the trust instead of being distributed to the beneficiary. Assets that remain in the trust are protected from the beneficiary’s creditors, but any undistributed income kept in the trust will be subject to higher income tax rates than what an individual would pay on the same amount.

  • A “trust protector” can be given the power to change the trust from a conduit to an accumulation trust. This can be valuable if there is a change in the beneficiary’s circumstances (due to disability, drug problems, etc.), making it advantageous to keep the distributions in the trust.

  • Your attorney will be able to suggest the best combination of beneficiary designations for both the IRA or retirement plan and your Trust(s). Having these options will let your beneficiaries make good decisions based on the circumstances at that time. For example, if your spouse is in ill health when you die, it may make sense for your spouse to disclaim an IRA so that your children can inherit it and have distributions paid over their longer life expectancies.

 

Take Action

It is essential that you take action to ensure that your IRA can’t be seized by your beneficiaries’ creditors. You should call a local estate or elder lawyer to discuss the matter. The attorney must analyze whether a Standalone Retirement Trust is appropriate to protect both your beneficiaries and your assets.

This article was contributed Contributed by Dahlia Robinson-Ocken on 07/28/2014 learn more about Dahlia at http://elderestatelaw.com

Comments
(0)
Comments-icon Post a Comment
No Comments Yet
The Law Blog: The Robinson Law Firm by AminovLaw
Call The Robinson Estate Planning & Elder Law Firm @ 267-225-3529
Jul 28, 2014 | 7 views | 0 0 comments | 0 0 recommendations | email to a friend | print | permalink

view as list
U.S. Supreme Court Rules Inherited IRAs are Not Protected from Creditors
by
Jul 28, 2014 | 49 views | 0 0 comments | 5 5 recommendations | email to a friend | print | permalink
On June 12, 2014, the U.S. Supreme Court—in a unanimous decision—ruled that Individual Retirement Accounts (IRAs) inherited by anyone other than a spouse are not retirement funds and therefore are not protected from the beneficiary’s creditors in bankruptcy.

 

The reasoning is, because the beneficiary cannot make additional contributions or delay distributions until retirement, it is not a retirement account. There is, in fact, nothing to prevent a beneficiary from withdrawing funds, or even clearing out the account, at any time. As a result, these funds must also be available to satisfy the beneficiary’s creditors during bankruptcy. Following the same logic, an inherited IRA is also subject to divorce proceedings.

 

This is not great news for parents who have planned to leave large IRA accounts to their children or grandchildren, with the desire to continue the tax-deferred earnings for many more years over their lives.

 

Fortunately, there is a solution. By using a trust as the beneficiary of the IRA, you can continue the tax-deferred earnings over a beneficiary’s life expectancy and protect your hard-earned savings from the beneficiary’s creditors.

 

The Key Takeaways

  • Inherited IRAs are not protected from the beneficiary’s creditors in bankruptcy.

  • Using a trust as beneficiary can continue the tax-deferred earnings over a beneficiary’s life expectancy and protect these savings from the beneficiary’s creditors.

 

Using a Trust as Beneficiary of an IRA

Using a trust as beneficiary of an IRA or retirement plan account will let you use the oldest beneficiary’s life expectancy to stretch out the tax-deferred growth. It will let you keep control over when the beneficiary receives distributions, and can protect the asset from the beneficiary’s creditors (including bankruptcy), predators (those who may have undue influence on the beneficiary), irresponsible spending, and divorce proceedings. You can even provide for a beneficiary with special needs without jeopardizing government benefits.

 

In order for the trust to qualify, it must meet certain requirements, including that a) it must be valid under state law; b) it must be irrevocable not later than the death of the owner; c) all beneficiaries of the trust must be individuals (no charities or other non-persons) and they must be identifiable from the trust document; and d) a copy of the trust document must be provided to the account custodian by a certain date.

 

Because the trust’s oldest beneficiary’s life expectancy must be used to determine the distributions, many people opt for a separate share for each beneficiary or even a separate trust for each beneficiary. These are called “stand alone retirement trusts” because they are created solely for retirement plan and IRA assets. (A revocable living trust would still be used for other general estate planning purposes.)

 

What You Need to Know

Planning for IRAs and other tax-deferred savings plans is not something to be taken lightly and not a task to try to master yourself. The laws are complicated, and a simple mistake can be disastrous and irreversible. Because there is often a lot of money involved with these plans, it pays to work with an estate planning attorney who has considerable experience in this area.

 

Important Notes

  • A conduit trust requires that all distributions from the IRA or retirement plan must be distributed to the trust’s beneficiary(ies). (The trust is simply a “conduit” from the plan to the beneficiary.) These distributions are not protected from a beneficiary’s creditors and have no asset protection.

  • With an accumulation trust, the distributions may be kept within the trust instead of being distributed to the beneficiary. Assets that remain in the trust are protected from the beneficiary’s creditors, but any undistributed income kept in the trust will be subject to higher income tax rates than what an individual would pay on the same amount.

  • A “trust protector” can be given the power to change the trust from a conduit to an accumulation trust. This can be valuable if there is a change in the beneficiary’s circumstances (due to disability, drug problems, etc.), making it advantageous to keep the distributions in the trust.

  • Your attorney will be able to suggest the best combination of beneficiary designations for both the IRA or retirement plan and your Trust(s). Having these options will let your beneficiaries make good decisions based on the circumstances at that time. For example, if your spouse is in ill health when you die, it may make sense for your spouse to disclaim an IRA so that your children can inherit it and have distributions paid over their longer life expectancies.

 

Take Action

It is essential that you take action to ensure that your IRA can’t be seized by your beneficiaries’ creditors. You should call a local estate or elder lawyer to discuss the matter. The attorney must analyze whether a Standalone Retirement Trust is appropriate to protect both your beneficiaries and your assets.

This article was contributed Contributed by Dahlia Robinson-Ocken on 07/28/2014 learn more about Dahlia at http://elderestatelaw.com

comments (0)
view/post comments
no comments yet

Board discusses Glendale yeshiva expansion with center
by Andrew Shilling
Jul 25, 2014 | 1078 views | 0 0 comments | 3 3 recommendations | email to a friend | print
Overcrowding at a Glendale yeshiva has led the owners to begin a dialogue with the local community board over expansion. Community Board 5 (CB5) chair Vincent Arcuri said he and other board members met with representatives of the United Talmudic Seminary, located at 73-10 99th St., to discuss ways to create a more comfortable environment for their students. “They’re interested in expanding and with different classrooms and more comfortable classrooms,” Arcuri said. “The objective would be to reduce the number of buses traveling back and forth, and figure out how to take care of all the students.” Currently, the school has roughly 14 buses making the trip from Williamsburg every morning, according to Arcuri, bringing in so many students that there is only an estimated 23 inches of space per student. He added that while the center has started the discussion for expansion, they mentioned they did not want the additional space to translate to more students. “They don’t want to go over a certain number because if it’s too many students, then it’s no longer a great teaching venue,” he said. While Yeshiva member Abraham Markowitz acknowledged discussions with the board to expand the center, he denied comment until a later date. A spokesperson with the Department of Housing Preservation and Development said the landlord has not made any filings since February 2013. “That was for the modification of an existing fire suppression system in the kitchen,” the spokesperson said. Glendale Civic Association president and CB5 member Kathy Masi noted the center sits on potentially contaminated property and is a poor space for a school, so she is currently against the proposal. “I think that I must be the only original opponent of building the yeshiva,” Masi said. “The other opponents are either in bed with them or working for elected officials or both.” Masi also noted the yeshiva's close proximity to a proposed 125-family transitional housing facility on Cooper Avenue. “They are just not looking at the bigger picture down the line,” she said.
Comments
(0)
Comments-icon Post a Comment
No Comments Yet