Protecting IRA Assets for Beneficiaries: IRA Beneficiary Trusts


Earlier this year the Supreme Court ruled in Clark v. Rameker that inherited retirement accounts are subject to bankruptcy claims. As a result of this ruling, Individual Retirement Account (IRA) owners are taking steps to ensure assets accumulated over a lifetime are protected for loved ones. One tool that offers protection is an IRA Beneficiary Trust.

IRA Beneficiary Trusts keep retirement assets shielded from creditor claims while allowing maximum stretching of the benefits for the beneficiaries. (Non-spousal beneficiaries may not rollover inherited retirement accounts into their own account. True IRA rollovers are solely a spousal right.)
In addition to tax-deferred growth, implementing a trust provides the IRA owner the ability to add spendthrift provisions. Spendthrift provisions are ideal if the owner is concerned beneficiaries will frivolously spend inherited assets.
Prior to the Clark v. Rameker decision, North Carolina instituted a statutory exemption from creditor claims on inherited IRAs. This protection, available in only about seven other states, protects inherited IRAs even in bankruptcy. However, this protection will not help North Carolina residents’ children and grandchildren who live in other states without a similar law.
Individuals should review trust options with an asset protection attorney. Not only will account owners need to create an IRA Beneficiary Trust, they will need to make sure beneficiary designations are updated properly. The retirement account’s beneficiary designation should name the trust (often several sub-trusts are named), and the trust’s beneficiaries should be kept current. Beneficiary amendments can be made at any time.
Bankruptcy claims on retirement accounts are not the only concern for account owners. IRAs are also subject to back-tax claims. (Additionally, distributions made to pay tax debts are taxable.) Discuss the risks your accounts face and how to mitigate threats during annual reviews with an asset protection attorney.

Greg Herman-Giddens

Chapel Hill Estate Planning Attorney Gregory Herman-Giddens

TrustCounsel’s principal Greg Herman-Giddens presents “IRA Trusts: Now More Than Ever” at WealthCounsel’s North Carolina Forum on Friday, November 7th in Greensboro. This event is open to WealthCounsel members and non-members. Earn CLE credit.

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