Inherited individual retirement accounts can be some of the most complex assets to deal with when someone is administering your estate. Federal law states that inherited IRAs for non-spouse beneficiaries are not necessarily protected from creditors, meaning that a beneficiary’s creditors could claim they have the rights to access these funds left behind by you, even if they were intended for a beneficiary.
In a recent 2014 Supreme Court case, a beneficiary who is not the spouse of the IRA owner, who is scheduled to receive the IRA, doesn’t necessarily have creditor protection if the non-spouse beneficiary ultimately files for bankruptcy. There are exceptions to this rule and it could make sense to name a trust as a beneficiary. One of the best ways to protect IRA assets from a beneficiary’s creditors is to name the trust as the beneficiary of the IRA rather than the IRA directly.
Speaking with a Massachusetts estate planning attorney can help to reveal whether or not this makes sense for your individual retirement account. As with all accounts where you need to name a beneficiary, it’s just as important to stay up to date on the beneficiary designations so that your account is always prepared to be passed down to someone else as your life changes. Sudden and major life changes like a divorce, death, or remarriage would warrant reconsideration of your existing beneficiaries.