Protecting Your IRA for Your Loved Ones

Everyone knows the value of the IRA or 401k in saving for retirement. In addition to providing tremendous tax Family Planningadvantages, qualified plans also provide substantial asset protection for the owner of the account. In fact, ERISA – the Federal law that governs how qualified plans are administered – makes it almost impossible for a creditor to attach the assets held in these plans. Good news for the owner of the plan. However, what about your beneficiaries, do they enjoy the same benefits? The answer is “NO”.

It has long been the case that when an IRA or other qualified plan is inherited by a beneficiary, the assets held in the qualified plan are not protected from the beneficiary’s creditors. Recently, the Supreme Court took it one step further. The Supreme Court recently held that funds held in an inherited IRA are not considered “retirement funds” and therefore are not exempt assets in a bankruptcy. So what can you do to protect these very valuable asset for your loved ones?

The answer is quite simple – establish an “IRA Trust” for you and your beneficiaries. An IRA Trust is a very special type of trust. Once established, the IRA Trust becomes the designated beneficiary of your IRA. The trust is uniquely crafted to provide your beneficiaries with all of the tax advantages IRA’s provide, but because the trust becomes irrevocable upon the Grantor’s death and contains the requisite spendthrift language, the assets are once again placed out of the reach of the beneficiary’s creditors. What an amazing gift to give to your loved ones.

So remember, anyone having a material amount of wealth in an IRA, 401k, 403b, or any type of qualified plan should consider establishing an IRA Trust to hold and manage the asset for the benefit of your loved ones after you pass away.

This is attorney Jamie Kalicki of the law firm Kalicki Collier where our attorneys collaborate and innovate to help you succeed.