If you have been told, don’t worry about your IRA it is protected because Florida has statutory protections for IRAs, you may have misunderstood or been mislead. While Florida does have statutory protection for inherited IRA’s, this protection only applies if your beneficiaries are residents of Florida at the time of your death.
Why take a chance with naming individuals as a beneficiary of your IRA. A properly designed trust should be the beneficiary of your IRA to protect the proceeds from the creditors of your beneficiaries at the time of your death.
In June of this year, the US Supreme Court in Clark V Rameker stated that children or other “non-spouse” individuals who inherit are at risk of loss to their creditors. This was not a close call, it was a 9-0 decision and clarifies that an inherited IRA is not protected from the creditors of its owners.
While a spouse can be named, the spouse has a unique option that other beneficiaries do not have. The spouse can do a rollover IRA. This protection does not help one who dies without a spouse or has serious risks if the surviving spouse is in need of long-term care.
While in the past, most financial professionals would object to naming a trust as a beneficiary, you will start to see them realize the benefit as they become aware of the new risks to the beneficiaries that they did not foresee. They also did not understand that it is possible to create a trust where the stretch out provisions are not lost.
To maintain the stretch out provisions in an inherited IRA where a trust is a beneficiary, the trust must be a qualified beneficiary. For a trust to be a qualified pass thru beneficiary of an IRA, it must meet 4 criteria:
- The trust must be valid under state law;
- The trust must have identifiable “human” beneficiaries;
- The Trust must be irrevocable after the death of the settlor; and
- a copy of the plan document must be provided to the plan administrator
It is important to comply with these rules when naming a trust as a beneficiary of an IRA or other retirement account.
If a spouse was to maintain the decedent’s IRA status and draw out funds over the life expectancy of the decedent, the IRA would not be protected as a Roll over IRA or a new IRA.
If you would like to discuss how to properly name a trust a beneficary of your IRA, please contact our Jacksonville estate planning lawyers.