Sep 1, 2010 12:00 PM

By Bruce D. Steiner

As Thomas C. Foster points out in his companion piece to this article (see p. 54), the law governing the protection of inherited individual retirement accounts from creditors is uncertain at best. The statutes and court interpretations vary from state to state. For example, the Florida statute provides that “assets payable to an owner, a participant, or a beneficiary from, or any interest of any owner, participant, or beneficiary in” a qualified plan or IRA are exempt from claims of creditors of the owner, beneficiary or participant.¹ Nevertheless, in Robertson v. Deeb,² the Florida District Court of Appeals held that the statute didn't extend to inherited IRAs. To add to the confusion, bankruptcy courts may reach results that are different from those reached by state courts. And, an IRA owner may not know in what states his beneficiaries may reside, what future state laws will provide or how courts will interpret state laws.

Despite the uncertainty as to state law, an IRA owner can protect her IRA against her beneficiaries' creditors by leaving it in trust rather than outright. After the IRA owner's death, the IRA must be paid out over the life expectancy of the designated beneficiary. Only an individual may be a designated beneficiary. If an IRA is payable to a trust, the oldest beneficiary of the trust is treated as the designated beneficiary, assuming certain requirements are met. If a beneficiary fails to take a minimum required distribution, there is a 50 percent penalty on the amount not distributed, although the Internal Revenue Service may waive the penalty if the failure was due to reasonable error and reasonable steps are taken to remedy the error (in other words, if the beneficiary belatedly takes the distribution).³

Topics of Interest

Estate Tax	Donor Advised Funds
GSTs	Family Offices
Private Foundations	Life Insurance
2010 Tax Act News	Industry Trends Surveys

E-Newsletter Signup

Poll

Topics of Interest

Estate Tax	Donor Advised Funds
GSTs	Family Offices
Private Foundations	Life Insurance
2010 Tax Act News	Industry Trends Surveys

E-Newsletter Signup

2011 Trust Glossary

Click here to download the 2011 Trust Glossary

50 Years Ago This Month

Click here to read the issue.

50 years ago, in May 1962, we featured articles such as: "Future of Canadian Trusteeship" by Arthur H. Mingay", "Training Trust Employees" by Ian M. Marr, "What is a Trust Officer?" by Eric J. Brown, and "Selling Services" by Donald I. Webb.

Conrad Teitell's Guide to Tax Benefits For Charitable Gifts

Click here to view the most up to date guide (September 2011)

Press Releases