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Inherited 401ks subject to creditor claims, thanks to new ruling

It's a pretty fair to say that most people would like to leave something behind for their family members when they die. Even though every financial situation is different, passing on an inheritance to loved ones is a strong desire for many Florida residents. Determining the best way to do that can take some careful planning, particularly when it comes to retirement accounts. Thanks to a new ruling by the U.S. Supreme Court, inherited retirement accounts may be subject to creditor claims.

Individual retirement accounts or IRAs, are used by millions of individuals across the country. While the money in these accounts is typically protected from creditors trying to collect debts, that only holds true for personal accounts. A ruling recently made by the Supreme Court has made it possible for creditors to make claims on IRAs that have been inherited. The reason for this distinction between personal and inherited accounts has to do with the ability for the account to ensure financial security. Personal accounts will continue to grow overtime, where those inheriting accounts are required to take distributions, inhibiting the account's growth in the long run.

In differentiating the nature of these accounts, doors have been opened for creditors to make claims on the inheritance, particularly in bankruptcy cases. Those planning to leave an IRA to a beneficiary may need to considered making changes to their estate plan, in an effort to avoid this possible consequence. Organizing a trust to receive these funds before being distributed to heirs may be a workable option.

Ensuring that an inheritance is protected from creditor claims can be a significant obstacle. After a lifetime of hard work and savings, it is understandable that Florida residents would want to make sure their heirs actually receive the full inheritance originally set aside for them. While this new ruling may have added a few more challenges in allowing that, there may be other legal options available to ensure estate-planning goals are still achieved.

Source:, "You Won't Like What the Supreme Court Just Did to Your IRA", Dan Caplinger, June 13, 2014

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