An individual’s IRA is considered a retirement fund for purposes of the Federal Bankruptcy Code. This allows the individual’s IRA to be protected against creditors for an indefinite amount. However, when such funds are inherited, they lose the characteristics of a retirement fund. A recent US Supreme Court decision will allow aggressive creditor attorneys to attack inherited IRAs.
Missouri is one of seven states to pass specific legislation protecting the inherited IRAs from creditors. This legislation only applies to those beneficiaries who reside in Missouri. As many beneficiaries may be spouses and/or children who may move outside of Missouri, further planning may be appropriate for large IRA accounts. Such planning may include:
- Naming a separate fully discretionary trust as beneficiary
- Setting up a charitable remainder trust
- Creating a conduit trust
Each of these strategies has advantages and disadvantages depending on your particular case. For those who wish to provide comprehensive protection for their beneficiaries’ inheritance, contact your Anders advisor to discuss your options.