On June 12th the Supreme Court of the United States handed down a decision stating that Inherited IRA’s are subject to the claims of creditors. For anyone who inherits an IRA, creditors or a spouse in a divorce can attach that inheritance if not properly planned. Even a surviving spouse can have a problem if he or she does not roll the IRA over into his or her own IRA.
One way to protect the IRA inheritance of any beneficiary is to use a qualified trust as beneficiary. Our office for example has a qualified trust that solves this problem.
Leaving an inheritance to a beneficiary outright makes the money subject to the person’s creditors, divorcing spouses and of course their own lack of maturity with the funds.
By leaving the inheritance in trust, these concerns can be addressed. While the funds for this beneficiary are held in trust for their benefit, most creditors are unable to attach the trust assets since the underlying assets continue to be treated as the assets of the giver and not the beneficiary.
Another creditor that may be of concern is a divorcing spouse. While these funds are held in a trust instead of giving them outright to the heir, a spouse will be unable to attach these assets claiming he or she has a right to part of the inheritance.
Most importantly, beneficiaries at all ages can sometimes be less wise with money left to them than the money they earn on their own. With this in mind, holding the inheritance in trust serves to make the funds available but not so available as the beneficiary can spend all the funds foolishly.
A client can choose to have the beneficiary be his or her own trustee, with a disinterested third-party discretionary trustee, or give full authority to this third party. They can also decide where the leftover funds may go when the beneficiary dies or let the beneficiary decide.
For more information, call our offices at 480-345-0444. We are happy to discuss.