Grand Rapids and Muskegon Trust Lawyer: How to Protect Inherited IRAs From Future Bankruptcy 
Grand Rapids and Muskegon trust lawyers are abuzz following a recent US Supreme Court decision that will have big implications for clients.  The fact that these professionals keep up-to-date on legislation and court decisions that affect their clients is one of the most important reasons not only to hire an estate planning lawyer in the first place, but also to check in with the attorney at least annually to see if any changes need to be made to a previous plan in light of new information.
While a person’s own IRA can be protected in the case of bankruptcy, the court has determined that an inherited IRA cannot.  While that is big news for those who have already inherited an IRA, it is also a call to action for those planning to leave one behind.  Being aware of the consequences of the Court’s decision can drastically change the approach to planning to ensure heirs are protected from this new development.
It is common for estate planning lawyers in Grand Rapids and Muskegon to see clients who have much of their wealth in the form of IRAs, 403(b)s, and 401(k)s.  During the planning process, clients determine how that money should be used after their death.  It often makes up a large part of the estate they intend to leave behind.  This was commonly done by placing it into a standard Revocable Living Trust or naming the beneficiary directly.  Now, however, if the heir declares bankruptcy, that money can be taken away.
A Real-Life Example of Savings and Loss
The possibility of losing an inherited retirement account in this manner is more common than you might expect.  Take for example the case of Joan and her father, Robert.  Robert worked hard to save for retirement, accumulating $450,000 in his 401(k).  Unfortunately he was also diagnosed with a serious medical condition and accumulated over $300,000 in medical debt before he passed away, all of which his daughter Joan co-signed to continue treatment.
After Robert’s death, Joan transferred the funds of Robert’s retirement account into an “inherited” IRA so that she could access the money without having to pay a 10% penalty before age 59 ½ .  That money was her lifeline.
However, the medical bills spiraled out of control and were eventually turned over to a collection agency.  Unable to pay back the balance, Joan was forced into bankruptcy. Little did she know that the money in her “inherited” IRA could now be seized by creditors during the bankruptcy proceedings.  Had Robert planned for this possibility, the funds would have stayed protected.
Protecting Wealth In An IRA For Beneficiaries
Protecting an inherited retirement account with a Standalone Retirement Trust is the means many estate planning lawyers in Grand Rapids and Muskegon are recommend in light of this new Supreme Court ruling.  Standalone Retirement Trusts can protect against other threats, too.  The assets held in these trusts becomes inaccessible to any future creditors of the trust’s beneficiaries, because the trust was established or funded by someone other than the beneficiary.  By naming an independent trustee rather than having the beneficiary play this role, even more protections are put in place.  A Grand Rapids and Muskegon trust lawyer can offer a variety of suggestions on how to choose the appropriate trustee.
You and your trustee must follow fairly stringent guidelines to keep the retirement accounts protected.  A trust lawyer in Grand Rapids and Muskegon will help you and your trustee to ensure these regulations are followed.  When done properly, the Standalone Retirement Trust’s distributions can be made similarly to how they would have from the IRA without the risk from the beneficiary’s creditors.
Whether you are just beginning the planning process or you have already created an estate plan, this landmark decision by the US Supreme Court can adversely affect you and those you leave behind.  Make sure to contact your trust lawyer in Grand Rapids and Muskegon to ensure that your IRA is protected for the next generation.
If you would like to speak with a professional Grand Rapids and Muskegon estate planning lawyer, please contact Eyestone Law Offices at 800.667.5291 to schedule a free initial consultation today!  We provide services throughout West Michigan and have three offices conveniently located in downtown Grandville and Muskegon, and another in Grand Rapids near Woodland Mall.
 
UPDATE: Check out the “Webinar Series: IRA Preservation Trust” here for more information on this topic.