July 12, 2016
BIG NEWS: Supreme Court Holds Inherited IRAs are Not Protected Anymore
Don’t leave your IRA outright to a kid.
In the big news department, the Supreme Court held in Clark v. Rameker that inherited IRA’s are not asset protected. There were differing opinions on whether an inherited IRA would be protected against bankruptcy, however it is now clear that they are not.
Here’s the facts, at death Ms. Heffrom owned an IRA worth about $300k, with her daughter Mrs. Heffron-Clark named as the designated beneficiary. When Mom’s account passed to daughter, daughter and her husband were in the middle of bankruptcy proceedings.
It’s common knowledge that IRA’s are protected assets that are protected against such proceedings. However, the issue is whether an inherited IRA is a “retirement fund” under the bankruptcy code.
The Supreme Court unanimously ruled that the inherited IRA was NOT a “retirement fund” under the bankruptcy code and was not protected.
Sooooo………what does this mean?
Well it means for Michigan clients who have retirement accounts greater than $250,000 then those IRA’s should not be given outright to children, but instead should be held in Stand Alone Retirement Plan Trusts (RPTs) to provide asset protection against creditors and bankruptcy proceedings.