This past June, an important ruling from the Supreme Court found that an inherited IRA is not protected as retirement funds. If a beneficiary of inherited IRA funds files for bankruptcy, the funds they inherited could be subject to creditor claims.
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This new finding highlights the value of a trust. If the inherited IRA funds were received by a beneficiary though a trust, this would help to protect those funds so that they could be used in the manner desired by the person setting up
the beneficiaries. One such example is the use of a Standalone Retirement Trust, where inherited funds flow to a third-party trust after the retirement plan owner passes away. While the beneficiary still retains access to the funds, the fact that he or she didn’t create the trust allows quite a bit of protection for the beneficiary.
There are some states where laws on the books do protect inherited retirement accounts from creditors, but it’s always wise to consult with an estate planning attorney to discuss best structures for passing down assets. To learn more about your options, send us an email at firstname.lastname@example.org or contact us via phone at 732-521-9455 to get started.