IRA’s Now Vulnerable to Creditors

Estate planning is something that everyone should be doing, not just for yourself but for your loved ones. IRA’s have been a huge part of what many people leave for loved ones. Due to a recent Supreme Court ruling, they are now not protected from creditors, becoming a new consideration when planning your estate.
In a major decision, the Supreme Court ruled this past June that inherited IRAs are not considered protected retirement funds-and are thus subject to creditors’ claims if the beneficiary files for bankruptcy.
In the case of Clark v. Rameker, Heidi Heffron-Clark argued that a $300,000 IRA she inherited from her mother in 2001 qualified as a protected retirement account. As such, she contended, the account was exempt from the claims of creditors after Heffron-Clark and her husband filed for bankruptcy in 2010.
However, under U.S. tax code regarding inherited IRAs, Heffron-Clark was required to withdraw a minimum amount of money from the account each year, even though she is not yet retirement age. Given this, the court decided the account was not a protected retirement fund because the beneficiary wasn’t using it as one.
Why does that matter?
The Clark v. Rameker decision means that, in the case of bankrupt estates, inherited IRAs will now be considered assets-fully available to satisfy creditors’ claims. If you pass a retirement fund down to a child or grandchild, that inherited money will no longer be protected if your beneficiary must file for bankruptcy.
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