When someone goes through bankruptcy, some of their assets are protected from creditors. An inherited IRA from a family member is not usually one of those assets. If you plan to pass down retirement funds, you may want to talk to our Washtenaw County asset preservation attorneys about ways to preserve an IRA for your beneficiary.
Can Creditors Take Funds From an Inherited IRA?
Yes, if someone files for bankruptcy and they have money from an inherited IRA, those funds can be taken by creditors. This is true even though retirement funds are often exempt in bankruptcy filings. The protection does not apply when you inherit an IRA, except in one case.
Are Any Family Members Protected From Creditors When They Inherit an IRA?
If the beneficiary of the inherited IRA is your spouse, then they have some protection. A creditor cannot decide to go after the money because your spouse would have had access to your retirement assets in any case. When you pass down your retirement funds to anyone else, this money is unlikely to receive the same treatment.
Can a Trust Protect the Money in an Inherited IRA?
Fortunately, there is a convenient way to protect an inherited IRA no matter who you name as the beneficiary. You can create a trust. As a bonus, when you create a trust you can also assign a trustee and set rules about how the money can be used and dispersed. This can be a great idea if your beneficiary is not the best with their money. A trust can also provide other types of protection.
When you make a trust, you can make that trust inherit the IRA. Then you can allow the trust to distribute funds to your beneficiaries of choice. If your heir goes bankrupt, the assets in the trust are protected. This trust can also protect the funds in the inherited IRA if a beneficiary gets involved in a lawsuit or gets divorced. So setting up a trust can be a great idea even when you do not believe that your beneficiary is going to struggle with money or creditors.
Do I Need to Hire a Lawyer?
We would recommend hiring a lawyer. Setting up a trust can be tricky, and you want to make sure that all of the details are right. Our lawyers can also help you with other parts of your estate plan while we help you set up this trust. If there are other ways to protect your assets and leave something behind for your loved ones, we’ll help you find them.
Schedule a Consultation
When you are trying to figure out the best way to leave behind assets for your loved ones, contact Collis, Griffor & Hendra. We can schedule a consultation with one of our estate planning lawyers. Take the time to learn about all of your options.
