For many in debt, wondering what will happen to retirement accounts is often at the forefront of their thoughts. Generally, if a creditor files a claim against your estate after your passing, your retirement accounts are protected. If you leave an IRA to a beneficiary, however, and they owe a debt, the circumstances change. This is because, in Pennsylvania, inherited IRAs are much more vulnerable. As such, understanding what you can do to protect your beneficiaries and assets when planning your estate is critical. Keep reading to learn more about this process and discover how Pennsylvania estate planning attorneys can help you through these complex times.
What are inherited IRAs?
Inherited Individual Retirement Accounts (IRAs), also called beneficiary IRAs, are opened when someone inherits an IRA or employer-sponsored retirement account after the individual’s passing. Those who inherited these accounts will not be able to make contributions but can utilize the funds in the account. Additionally, the owner of an inherited IRA must remove all the funds from the account ten years after the original owner’s passing, unless they are an “eligible designated beneficiary.”
Additionally, if the owner of the inherited IRA is a trust fund, all funds must be distributed within 5 years of the inheritance.
Can these be used to pay off debts?
If you pass away with an IRA you plan to leave to a beneficiary and a creditor files a claim against them to recover the funds they are owed, it’s important to understand that a recent ruling in Pennsylvania has determined these accounts are not shielded from creditor claims like other traditional accounts. As such, the funds in your IRA that will be passed down to a beneficiary will be subject to seizure by creditors if necessary.
What can I do to shield my IRA for my beneficiaries?
Properly planning your estate can help protect your accounts from creditors to ensure your beneficiaries are protected in these instances. Generally, it’s in your best interest to create trust funds to hold your IRAs for your beneficiaries. However, you’ll need to ensure you work with an experienced estate planning attorney as the language in the trust can influence its validity. For example, you may be able to create a spendthrift trust, which can help provide additional protection for your beneficiaries.
At Friedman Schuman Layser , we understand how complex these matters can be, which is why we’re dedicated to fighting for you during these challenging times. Connect with us today to discuss your concerns and our firm can help guide you through the estate planning process to protect your assets and beneficiaries. We can help you achieve the peace of mind that your estate is in order after your passing.
