Creditors claims
I had a client ask about IRA’s when their mother passes.
Here’s the basic scenario:
Mother, NJ resident, single, 80 yrs old; health is failing
2 IRA’s for approx. $250k; beneficiary named directly to 5 kids equallys
1 IRA for approx. $400k; beneficiary named directly to an Irrevocable Trust created in 2013
No other assets to speak of in her name at this point.
The mother is a co-signer for $200k of student loans for one daughter,
Also has $200k mortgage loan for a home in Hawaii that another daughter owns/rents out but couldn’t secure the mortgage (so the Mom got it in her name).
The children are concerned that they will owe the $400k of student loans and mortgage before they receive their inheritance.
They called me to liquidate the IRA’s and get it out of her name. I explained she would be taxes in the highest bracket and net approx. $350k immediately.
My understanding is since the IRA’s have named beneficiaries we can do a stretch IRA directly with the kids, when she passes and these assets aren’t exposed to creditors.
Thanks, in advance, for your input!
Permalink Submitted by Alan - IRA critic on Thu, 2017-05-18 18:27
In June 2014, the US Supreme Court in the Clark v. Ramaker decision determined that inherited non spouse IRAs are not protected against creditors. There have been a handful of states that have passed statutes protecting inherited IRAs in those states, but the beneficiary may need to have lived in that state for 2 years in order to file for the state exemption. For the mortgaged home, the home itself should be enough to cover default of the mortgage.
Permalink Submitted by Ben Meyer on Thu, 2017-05-18 19:46
Permalink Submitted by [email protected] on Fri, 2017-05-19 16:46
Alan, you said “In June 2014, the US Supreme Court in the Clark v. Ramaker decision determined that inherited non spouse IRAs are not protected against creditors.” Does this mean not protected from the creditors of the inheritor/beneficary or the decedent? Would the beneficiaries be held responsible for the debts of the decedent? in this case the student loans are in question and assuming the student defaults and so the mom who co-signed may be held accountable. But, she’s now deceased. Would the creditor in this case be able to go after the Beneficial IRAs for claim?
Permalink Submitted by Bruce Steiner on Fri, 2017-05-19 18:40