Cracking the Golden Egg – Inherited IRA’s are Exposed to Creditors, Unless… | Estate Plan Pros

On Friday, June 13, the Supreme Court resolved any doubt regarding whether an IRA continued to have creditor protection after it was passed down to children – there isn’t any protection.  Creditors now have a clear ‘green light’ to go after beneficiaries of an inherited IRA said the court in Clark v. Ramiker. Recent rules have made inherited IRA’s a powerful tool for passing on wealth.  Effective January 1, 2003, the required minimum distribution rules (RMD) changed, allowing a non-spouse beneficiary to “stretch” their distributions out over their lifetime, not the previous owners lifetime.  This allows the money inside the IRA to continue to grow over the child’s lifetime. If you at age 45 for example, inherit a $200,000 IRA, and only withdraw the RMD, then in 30 years (ate age 75) you would have withdrawn $400,000 in RMDs, and still have almost $300,000 left in the IRA, assuming a 6% rate of growth.  That $300,000 can be used for your own retirement, or pass that down to your own children, a very nice golden egg. But, with the recent ruling of Clark v. Ramiker, that asset is at significant risk.

Protect the inherited IRA with The Stand Alone Retirement Trust

For anyone with an IRA worth over $200,000, this tool has significant benefits.  The Retirement Trust permits the IRA owner and his or her family to benefit from the maximum “stretchout” and protection benefits at the same time.  The protection provided by this trust has been previously tested and proven over many years of court decisions.  And the IRS has approved the income tax “strechout” feature (see PLR 200537044). In addition to providing protection from creditors, it has other benefits as well:

  • Help keep the IRA in the family, by avoiding having a child name his or her spouse as a beneficiary, and seeing the money go to that new spouses children
  • Protect the asset in case of a divorce
  • Managing the account for beneficiaries who are young children, elderly or disabled
  • Benefits a beneficiary with poor money management skills

This trust may save a million dollars or more for an IRA owner’s family with its income tax reduction and asset protection planning features.

Image courtesy of scottchan /

Tags:Asset Protection Creditor Protection IRA

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Erik Hartstrom

Erik is the founder of Estate Plan Pros, a leading estate planning practice in Elk Grove.  Erik’s practice focuses on Estate Planning Law. In Estate Planning, Erik works with clients to make the process simple, so clients can focus on more important things. He is a local authority for specialized estate planning instruments, like Special Needs Trust, Irrevocable Trusts, or other focused documents. Erik has litigated, negotiated, and mediated the gamut of family law cases. With this unique perspective as a family law and estate attorney he can often spot issues otherwise overlooked. Prior to graduating he worked as a legislative analyst for a non-profit organization, and volunteered as a youth counselor. Erik currently participates in local politics and is an active member of his local church. Erik is very happily married and has two young sons. Together, his family loves to get outdoors and enjoy the varied activities the Sacramento region has to offer.

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