In the past, creditor protection was afforded to your IRA and to the beneficiaries that would inherit your IRA, such as your children. However, in June of 2014, the United States Supreme Court ruled that an “Inherited IRA” is not protected from creditors of the beneficiaries.
This major change in the exempt status of the Inherited IRA, motivated estate planners to examine new ways to protect these retirement assets from creditors.
The need to restore creditor protection while maintaining the favorable tax treatment of IRAs has led many clients to consider adding a stand alone Retirement Trust to their estate plan. If drafted properly, this type of trust can protect Inherited IRA accounts from creditors, including a beneficiary’s divorcing spouse.
Finally, the stand alone Retirement Trust will allow your beneficiary to use the “stretch” feature of the IRA and therefore enjoy favorable tax treatment upon distribution.
Bill Wilson concentrates in Asset Protection, Special Needs Planning and Elder Law. He can be reached at 708-482-7090 or firstname.lastname@example.org