Many of us in the estate planning field have been following Clark v. Rameker, a case regarding Inherited IRAs. Today, the US Supreme Court finally issued its opinion.
This case involved a party (Ruth Heffron) declaring bankruptcy. One of the assets held by Ms Heffron was an IRA which she inherited from her mother.
Certain assets are considered protected assets under federal law. One of the most notable of those assets is IRAs. However, in this case, the court held that inherited IRAs do not fit the exemption, and therefore are not asset protected in bankruptcy.
This case has far-reaching implications when planning your estate. You can no longer rely on your children who inherit your IRAs getting any sort of protection.
The practical solution to this problem is to have your children inherit your IRA in a Retirement Benefits Trust. A Retirement Benefits Trust has all the same asset protection benefits as a Bloodline Trust, but also has the added benefit of preserving the tax deferral of an IRA. By leaving your IRAs to your children in a Retirement Benefits Trust, you can protect them from not only financial trouble, but also divorcing ex-spouses.
If you’d like to learn more about a Retirement Benefits Trust, contact me.