Is an "inherited" retirement account still a retirement account? This may sound like a rhetorical question, but it is one currently before the U.S. Supreme Court in the matter of Clark et ux. V. Rameker et al.
This issue was explored by Reuters in a recent article titled “U.S. high court to chart fate of inherited IRAs in bankruptcy”
You see, the Clarks inherited a $300,000 IRA and then went into bankruptcy to the tune of some $700,000. Consequently, when the bankruptcy trustee became mighty interested in the IRA, the Clarks cried foul.
As a general rule, IRAs are exempt from many bankruptcy proceedings of the account owner. Some courts have upheld this protection even when the account is inherited by one who is not yet a retiree and is not the account owner, but still complies with the strict distribution requirements for inherited IRAs.
Other courts have been less favorable. Now, it is up to the highest court to decide.
It may seem strange to think about bankruptcy when planning for the eventual distribution of your IRA to heirs. After all, leaving them (your IRA and your heirs) behind is one thing, but ensuring that they are protected is a still greater consideration.
How will the determination affect you in Overland Park and elsewhere?
Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.
For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri) and to download free tools to help you organize your estate, visit my estate planning website.
Reference: Reuters (November 26, 2013) “U.S. high court to chart fate of inherited IRAs in bankruptcy”