To protect your safety in response to the threats of COVID-19, we are offering our clients the ability to meet with us in person, via telephone or through video conferencing. Please call our office to discuss your options.

Inherited IRAs may no longer be safe from creditors' claims

Florida residents may be interested in an upcoming Supreme Court decision expected in June. IRA accounts may be treated differently when it comes to inheritance. In some jurisdictions, such as the 8th Circuit, inherited IRAs are exempt from creditors' claims in bankruptcy. In other jurisdictions, most notably the 7th Circuit, they might be open to claims by the heir's creditors. Because of this difference, the Supreme Court is considering how they should be treated when inherited.

IRA funds are exempt from bankruptcy claims for the original holder, within prescribed limits, as a retirement fund. When passed to non-spousal beneficiaries, their classification as a retirement fund has been argued.

Central to this argument is that the original holder of the IRA is penalized if the funds are withdrawn before retirement age. The non-spousal beneficiary is held to a different standard. They pay no penalty if the IRA funds are withdrawn before retirement and, in fact, are required to withdraw the funds within a time frame not related to age. This, according to some, opens the inherited IRA to the heir's creditors since it is not truly a retirement fund for them.

If the Supreme Court rules that inherited IRAs are subject to creditor claims, then it is may be prudent to plan differently. One suggestion is to place the IRA into a see-through trust. This method would limit the beneficiary's option to withdraw IRA funds and may be structured to provide the maximum tax benefits. It is important that the trust be irrevocable and restricts the use of funds. An attorney can offer further advice and counsel regarding the use of IRAs as part of a comprehensive estate plan.

Source: Think Advisor, "Supreme Court Ponders Changing the Rules on Nonspousal Inherited IRAs", April 14, 2014

No Comments

Leave a comment
Comment Information

Request Your Free Telephone Consultation

Bold labels are required.

Contact Information

The use of the Internet or this form for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be sent through this form.


Privacy Policy

This site uses Google's Invisible reCAPTCHA, which is subject to Google's Privacy Policy and Terms of Use.


North Office
950 S. Winter Park Dr
Suite 290
Casselberry, FL 32707

Toll Free: 888-681-4389
Casselberry Law Office Map

South Office
14115 Town Loop Blvd #300
Orlando, FL 32837

Toll Free: 888-681-4389
Orlando Law Office Map

At Korshak & Associates, P.A. we love feedback from our clients. Please take a moment and tell us how we’re doing!

Review Us