Asset Protection for Inherited IRAs

by Partridge Snow & Hahn LLP

Owners of large retirement accounts may be lulled into complacency concerning the asset protection available to these special assets.  The funds which you (and perhaps also your employer through a matching program) have contributed to 401(K) and other retirement plans throughout your working years are afforded unique asset protection for you.  This asset protection continues even after you stop working and, most likely, have rolled over your retirement plan assets into an IRA rollover with the investment advisor of your choosing.  For married individuals, the spouse is usually named as the primary designated beneficiary of these retirement assets.  And when the account owner dies, the surviving spouse as the primary beneficiary continues to enjoy this special asset with continuing asset protection.  However, asset protection enjoyed by the surviving spouse is not afforded to other beneficiaries, including the children and grandchildren of the account owner.

Individuals who own retirement accounts and do not have a spouse or do not name their spouse as the primary beneficiary of the retirement assets may be very surprised to realize that their chosen beneficiaries will not be able to protect these important assets from creditor claims.  Illustrative of this is the recent decision rendered in June 2014 by the United States Supreme Court in Clark v. Rameker.  This case involved an IRA account inherited by the daughter of the original account owner.  In balancing the competing interests of creditors and debtors, the Supreme Court held that the asset protection afforded retirement assets was intended to protect the original account owner after retirement and enable the retiree to meet financial needs.  This special treatment can also be enjoyed by the surviving spouse of the retirement account owner.  However, the Supreme Court decided that extending this protection to anyone other than the original account owner and his or her spouse went beyond the goal of preserving funds for a retiree's financial needs. 

Because the daughter, nephew, grandchild or best friend of a retiree as the designated beneficiary of a retirement account is not afforded special asset protection, the account owner must consider whether protecting these assets from the creditors and claimants of a non-spouse beneficiary is important enough to undertake an alternative planning strategy. 

A strategy which has been available, but not frequently used, is the designation of a trust as beneficiary of the retirement account.  Properly deployed, this plan can supply the creditor protection which the original retirement account owner may desire for his or her non-spouse beneficiary.  Some retirement account owners may have been disinclined from using trusts for this purpose due to a false impression that these trusts are cumbersome and complex.  This is not necessarily so.  Though there are special technical requirements to which a trust used for this purpose must adhere, the trust is administered just like any other.  Depending on many factors, including the value of the retirement account and the general credit-worthiness of the individual beneficiary, the retirement account owner may decide that a trust is not necessary.  It is our experience, however, that a trust is often preferred.  A retirement account owner should not be deterred due to a misunderstanding of how the trust works.

The use of a trust has many applications.  Perhaps your daughter is your chosen beneficiary for your IRA rollover, but she is a surgeon and, in spite of malpractice insurance coverage, would generally be more prone to claims of creditors than if your daughter was a kindergarten teacher.  However, regardless of your daughter's chosen career and how you feel that career may impact your daughter's ability to protect and preserve assets for herself and her family, the value of the IRA may be so significant that you would prefer to protect your daughter – the surgeon as well as the kindergarten teacher – rather than risk your hard-earned retirement assets to any potential third-party claimant.  Even your daughter the kindergarten teacher could be in a car accident and be responsible for another person's injuries thereby triggering litigation and potential liability to the injured person and exposing the retirement assets which your daughter inherited from you to her claimant.  Furthermore, not all beneficiaries need be treated the same.  Perhaps one child should inherit a share of your IRA rollover directly, but another child’s share should be held in trust.

Being aware of this recent United States Supreme Court decision and how it impacts inherited retirement accounts is a first step.  Becoming accurately informed about the mechanics of an estate plan which includes naming a trust as the beneficiary of your retirement account to supply creditor protection is a very important second step.  Only with correct information can you make the best decision concerning your wealth preservation strategy. 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Partridge Snow & Hahn LLP | Attorney Advertising

Written by:

Partridge Snow & Hahn LLP

Partridge Snow & Hahn LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.