INHERITED IRAs: ARE THEY PROTECTED?
01.Core Concepts
Short Answer • No. Well, mostly no. But it depends…Sometimes Yes. History • After different circuit court rulings were in conflict, the U.S. Supreme Court heard the case CLARK V. RAMEKER. • This case addressed the question of “whether an individual retirement account that a debtor has inherited is exempt from the debtor's bankruptcy estate under Section 522 of the Bankruptcy Code, 11 U.S.C. 522, which exempts "retirement funds to the extent that those funds are in a fund or account that is exempt from taxation" under certain provisions of the Internal Revenue Code. Conclusion • Based on the Clark v. Rameker decision, Inherited IRAs are not protected under Section 522 of the Bankruptcy Code. • The Supreme Court decision did not address state exemptions – thus, for example, the Texas statute that exempts inherited IRAs still applies. • So, not at the Federal level, but maybe at the state level. • Inherited IRAs can also be protected by leaving it to a trust. CONTROLLING AND PROTECTING INHERITED IRAs Issues for owner of the IRA: • Controlling distributions • Creditor protection Possible solutions: Both limited after SECURE Act: • Trusteed IRAs • See-through trust