Trusted Expert Network.com

If an IRA owner dies and leaves his IRA to a nonspouse beneficiary, that is considered to be an “inherited IRA”.

Example:

John, an IRA owner, dies and the beneficiary of his IRA is his son Robert. Upon John’s death, then John’s deceased IRA account for Robert’s benefit is considered to be an “inherited IRA.”

After the death of John, the IRA account should be retitled as follows:

John deceased IRA f/b/o (for the benefit of) Robert. Robert’s social security number should then be used on the “inherited IRA” account.

The IRS also permits the “inherited IRA” to be retitled as follows:

Robert as beneficiary of John’s deceased IRA. Once again Robert’s social security number should then be used in the “inherited IRA” account.

In the event that Robert has creditors, then the “inherited IRA” for Robert’s benefit may be subject to Robert’s creditors.

Whether or not an “inherited IRA” is protected against Robert’s creditors is dependent for the most part on state law.

For example, the following state laws indicate that “inherited IRA’s” are generally protected against the creditors of the beneficiary of an “inherited IRA”:

Alaska Florida Maryland
Arizona Idaho Missouri
Connecticut Kansas Tennessee

There may be other states that may protect “inherited IRAs” as well. The laws of each state must be examined. A number of court cases in the context of a bankruptcy proceeding have held an “inherited IRA” is not a protected asset.

If the potential beneficiary of an “inherited IRA” has a creditor rights issue, then asset protection approaches should be considered.

Related posts:

1. It’s 11PM. Do you Know Who Your Beneficiaries Are? Most people understand the importance of writing a will and...
2. Work Without Losing SSDI Benefits Sam wants to work but he is worried that he...
3. Your Most Valuable Asset Your Earning Power Whether Youre A Corporate Executive, Business Owner  Or A Professional,...
4. Trusts Trusts are a very common way to protect estate assets...
5. Learning more about the 529 Savings Plan Are you familiar with the 529 plans? They have become...

Related posts brought to you by Yet Another Related Posts Plugin.

Tags: beneficiary, cfp, inherited ira, ira, ira owner, personal finance, Sy Goldberg

About the Author: Sy is a senior partner in the Jericho law firm Goldberg & Goldberg, P.C., is Professor Emeritus of Law and taxation of Long Island University. He has authored guides for the American Bar Association and the America Institute of CPAs on retirement distribution rules. In addition, you may be interested in a consumer’s version entitled “Inherited IRAs: What Your Family Needs To Know” published by JKLasser.com

This entry was posted on Friday, July 10th, 2009 at 7:48 am and is filed under Personal Finance. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.