Permalink Submitted by Alan Spross on Fri, 2010-03-19 17:35
The answer is “it depends” heavily on what state you are in. There have been several court decisions concluding that there was no creditor protection under various state IRA statutes even if owned IRAs were fully protected in those states. And just recently there was case (Nessa) under the federal banktuptcy law that allowed the non spouse beneficiary creditor protection. That case was in MN. States have adopted different rules regarding the federal law and how it affects their state, so any general answer to this question would not be of much use.
If the non spouse beneficiary has known creditor problems and the IRA is large enough, consideration should be given to leaving the IRA to a trust for the benefit of that beneficiary in order to secure creditor protection.
Permalink Submitted by Alan Spross on Fri, 2010-03-19 17:35
The answer is “it depends” heavily on what state you are in. There have been several court decisions concluding that there was no creditor protection under various state IRA statutes even if owned IRAs were fully protected in those states. And just recently there was case (Nessa) under the federal banktuptcy law that allowed the non spouse beneficiary creditor protection. That case was in MN. States have adopted different rules regarding the federal law and how it affects their state, so any general answer to this question would not be of much use.
If the non spouse beneficiary has known creditor problems and the IRA is large enough, consideration should be given to leaving the IRA to a trust for the benefit of that beneficiary in order to secure creditor protection.