Permalink Submitted by Alan - IRA critic on Fri, 2014-11-07 16:40
By “assumed” if you mean a spousal inherited IRA in which the sole spouse beneficiary assumes ownership, once that occurs the IRA is treated as owned in all respects. That means that when the federal BK Act is applied, it is protected without limit if it was a rollover IRA or up to 1.245 mm if it received regular contributions from the deceased spouse or surviving spouse. For state law purposes, most fully protect IRAs outside of bankruptcy, but some do not. The Supreme Court ruling was that inherited IRAs are not protected by the federal Act, but a few states have now passed legislation that provides the same protection as for owned IRAs in that state.
I will have to research if the Supreme Court decision considers a spousal inherited IRA as different from a non spousal inherited IRA for purposes of BK Act protection prior to assumption. The tax code does not consider a spousal beneficiary to hold an inherited IRA for certain purposes such as the usual rollover limitations. Most of these spousal beneficiaries become owners fairly quickly either by doing a rollover or by default resulting from failing to take an RMD required as the beneficiary.
Permalink Submitted by ellen dawmdellipizzi on Fri, 2014-11-07 19:06
I am a spousal bene who just became owner of dec’d spouse’s IRA after 23 years – Thanks to your help and guidance this past July. Is my recently assumed IRA protected by the BK Act now, and, was it protected before I assumed ownership? Iam a New York state resident.
Permalink Submitted by Alan - IRA critic on Fri, 2014-11-07 19:15
The attached is copied from a well known asset protection site indicating that NY has opted out of the federal BK Act and provides 100% protection for IRAs. Even without a statute protecting inherited IRAs, you now own the IRA in all respects. With respect to the 23 years, I cannot tell what the creditor protection status was for the entire period. It might have changed what with all the court decisions before and after the 2005 bankruptcy Act. However, since you now own the IRA it is 100% protected at this point and will not be considered an inherited IRA again.
NEW YORK — Has Opted Out Of Federal Exemptions (Note 1)
Exemption for Tax-Qualified Retirement Plans, IRAs & Roth IRAs (Note 2): 100% — N.Y. Civ. Prac. L. and R. § 5205(c)
Permalink Submitted by Alan - IRA critic on Sat, 2014-11-08 20:37
No, the Supreme Court Case I thought you were originally referring to eliminated federal bankruptcy Act creditor protection for non spouse inherited IRAs. A few states have passed laws to protect them, but NY is not one of them. Your inherited IRA is therefore not immune to creditors. http://www.investmentnews.com/article/20140713/REG/307139990/inherited-iras-in-bankruptcy-cases
Permalink Submitted by Alan - IRA critic on Fri, 2014-11-07 16:40
Permalink Submitted by ellen dawmdellipizzi on Fri, 2014-11-07 19:06
I am a spousal bene who just became owner of dec’d spouse’s IRA after 23 years – Thanks to your help and guidance this past July. Is my recently assumed IRA protected by the BK Act now, and, was it protected before I assumed ownership? Iam a New York state resident.
Permalink Submitted by Alan - IRA critic on Fri, 2014-11-07 19:15
The attached is copied from a well known asset protection site indicating that NY has opted out of the federal BK Act and provides 100% protection for IRAs. Even without a statute protecting inherited IRAs, you now own the IRA in all respects. With respect to the 23 years, I cannot tell what the creditor protection status was for the entire period. It might have changed what with all the court decisions before and after the 2005 bankruptcy Act. However, since you now own the IRA it is 100% protected at this point and will not be considered an inherited IRA again.
Permalink Submitted by ellen dawmdellipizzi on Sat, 2014-11-08 08:41
I have an “inherted” IRA also [from late Father]. Is this protected from bankruptcy both federally and state [New York]?
Permalink Submitted by Alan - IRA critic on Sat, 2014-11-08 20:37
No, the Supreme Court Case I thought you were originally referring to eliminated federal bankruptcy Act creditor protection for non spouse inherited IRAs. A few states have passed laws to protect them, but NY is not one of them. Your inherited IRA is therefore not immune to creditors. http://www.investmentnews.com/article/20140713/REG/307139990/inherited-iras-in-bankruptcy-cases