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Asset Protection for Beneficiaries with an IRA Inheritance Trust

By Sabrina Casagrande
May 12, 2015

Asset protection strategies in Florida can include Individual Retirement Accounts (IRAs). While it is not the law in every state, Florida considers funds held in a traditional or Roth IRA as exempt property. This means those funds are protected from the creditors of the owner and beneficiary while the owner is still alive. An IRA Inheritance Trusts can be set up to extend creditor protection when the owner passes away. IRAs are a big part of estate planning today, and this strategy is among many others to achieve asset protection during life and at death.

Asset protection is an important part of estate planning. Beneficiaries may need creditor protection if a bankruptcy, divorce or lawsuit occurs resulting in a judgment against them. Creditor protection can be heavily affected by the death of the IRA owner. Some beneficiaries, such as surviving spouses, are eligible to roll the funds over into their own IRAs, allowing the creditor protection to remain intact. However, the United States Supreme Court recently decided that, if no rollover occurs and the IRA passes to children or other beneficiaries, the funds become within the reach of that beneficiary’s creditors.

Among many other asset protection strategies to provide creditor protection to a beneficiary of an IRA is to create a standalone, retirement plan trust, or what we call an IRA Inheritance Trust. Once created, that trust would be designated as the beneficiary of the IRA. IRA inheritance provisions can be included in one’s revocable living trust. But, there is no creditor protection for the beneficiary in doing so. Assets of a revocable living trust distributed to a beneficiary can be reached by creditors. But, an IRA standalone trust can protect the assets in the IRA so money that your beneficiaries receive is protected from their creditors. A typical living trust allows for the payments of debts, taxes and expenses of the decedent before there is a distribution to beneficiaries. A standalone IRA Inheritance Trust prevents the IRA funds from being used in that manner.

Asset protection is an important element of IRA ownership. According to the Florida Bar, an estimated $14 trillion is held in IRAs or qualified plans that will rollover into IRAs. Creditors are not holding back with such a large amount of money in savings. They are using aggressive, creative tactics to reach those funds. Asset protection strategies will help keep the beneficiaries of IRA owners from having their inheritance disappear before their eyes. Although trusts can be intricate creatures, if your goal is preventing creditors from touching your IRA beneficiaries’ inheritance, it is worth considering an IRA Inheritance Trust.

If you are interested in exploring how asset protection strategies can be employed to your advantage or other forms of estate planning, call us at 813-852-6500 to schedule a consultation.


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