Most people have invested large portions of their net worth into Individual Retirement Accounts (“IRAs”). Maybe your employer or financial adviser have strongly recommended that you contribute to your account to invest for retirement, which you planned to leave to your loved ones. If so, proceed with caution. As opposed to when you, the retiree, own the retirement accounts, the Supreme Court in Clark v. Rameker determined that inherited retirement accounts do not have asset protection, meaning they can be seized by creditors.
How Can You Protect Your Loved One's Inheritance of an IRA?
Fortunately, retirement accounts can be protected if take the appropriate steps. An estate planning vehicle called the Standalone Retirement Trusts (“SRT”) is specially designed to protect retirement assets from creditors.
A properly drafted SRT:
- Protects inherited retirement accounts from creditors;
- Protects inherited retirement accounts from divorcing spouses, predators and other potential lawsuits;
- You may choose to have an experienced investment manager to oversee the assets by a professional trustee;
- Requires the beneficiary to “stretch” the benefit of an IRA instead of cashing out the account, which can have serious tax consequences;
- Prevents the beneficiary from gambling away the inherited retirement account or blowing it;
- Enables proper planning for a special needs beneficiary;
- Permits you to name minor beneficiaries, such as grandchildren, without the need for a court-supervised guardianship; and
- Facilitates generation-skipping transfer tax planning to ensure estate taxes are minimized or even eliminated at each generation of your family.
Although your loved ones creditors may be able to access their inheritance after you are gone, you can take action now to protect your retirement account.
Do You Need To Speak With A Lawyer About Estate Planning?
If you need to speak with an experienced estate planning lawyer please contact us online or call our Virginia Beach office directly at 757.490.3500 to schedule your free consultation. We have offices throughout Virginia including Chesapeake, Newport News, Norfolk and Suffolk.