When people in Nevada plan for the future, IRAs can be an important part of that planning process. This is true whether people are planning for their retirement years or thinking about the distribution of the remainder of the account as part of their estate. Because of the different ways that inherited and individually owned IRAs are treated under the law, some people may wish to consider naming a trust the beneficiary of their IRAs after death rather than an individual person.
IRAs are among the types of qualified retirement funds that have strong protection from creditors under the 1974 Employee Retirement Income Security Act. Up to $1.25 million of assets are protected from the reach of creditors when they are held in a traditional or Roth IRA under bankruptcy law. However, inherited IRAs are viewed differently than IRAs comprised of a person’s own retirement savings. When a person receives an inherited IRA as a beneficiary after the original account creator’s death, that account is viewed as a regular asset under the law and does not receive special protections from creditors or bankruptcy.
Because an inherited IRA is no longer being used by the person who created it as a retirement fund, it is treated like any other asset during bankruptcy. This means that, especially in the case of a beneficiary other than a person’s spouse, the beneficiary’s access to the funds may not be protected in case of a financial crisis. If this is likely, a trust could provide much stronger creditor protection to provide support for the desired beneficiaries.
Dealing with the complexities of estate planning can be challenging yet important to a person’s peace of mind for the future. An attorney can provide key advice on managing an estate plan as well as creating important documents like wills, trusts and powers of attorney.