IRA piggy bank

As the name suggests, an inherited Individual Retirement Account (IRA) is an account that consists of your beneficiary’s inheritance from the leftover funds in your IRA or employment-sponsored retirement account. This may greatly benefit your beneficiary, unless they ever find themselves in a financially bankrupt situation. As you may already know from your estate planning endeavors, retirement accounts may not be afforded the same protections from creditors as other estate planning documents (i.e., trusts). Read on to discover whether my beneficiary’s inherited IRA can be protected from creditors and how a seasoned Broward County estate lawyer at The Probate Lawyers can provide them with the legal support they require.

How can I have my beneficiary inherit my IRA account?

Before all else, you must understand how to set up your beneficiary inheriting your IRA upon your unfortunate passing, along with whether this plan is worth it.

So, within your IRA, you must designate the person you desire to be the beneficiary of this account. You may make this designation by disclosing your relationship to the desired beneficiary, such as, “the person I am married to at the time of my death” or “my firstborn child at the time of my death.”

Then, when the time of your death comes, the funds held in your IRA may be transferred into a new IRA in your beneficiary’s name. This is what is referred to as the inherited IRA.

Can my beneficiary’s inherited IRA be protected from their creditors?

The most recent Supreme Court ruling holds that inherited IRA should not be viewed as traditional retirement accounts when it comes to bankruptcy proceedings and the like. The reason is that beneficiaries of inherited IRA do not have to wait to reach retirement age to access these funds. Therefore, they should have no issue tapping into these funds when paying back creditors in their ongoing bankruptcy proceedings. Of note, the only exception to this ruling is if the beneficiary of the inherited IRA is the spouse of the original IRA holder.

So, for non-spouse beneficiaries, the only way in which you may control having their inherited IRA protected from their creditors is if you name a trust as the beneficiary instead. With, a trust may become the legal owner of your IRA at the time of your death. Then, your named trustee may administer these funds to the individual who was unable to own it outright. This is an extra step in your estate planning process that may make all the difference in safeguarding what your beneficiary is entitled to.

To allow proper protections to be implemented, it is in your best interest to retain the services of a competent Broward County estate lawyer. Contact The Probate Lawyers today.