Inherited Roth IRA Creditor Protection ideas
On 12 Jun 2014 the Supreme Court (CLARK ET UX. v. RAMEKER) decided that Inherited Roth IRAs are not given automatic creditor protection by Federal law. This left protection for Inherited Roth IRAs up to the states or up to other remedies. I live in Florida, a protected state, but beneficiaries live in unprotected states. Are there specific steps I can take to ensure protection of Inherited Roth IRAs for my beneficiaries? Must I secure an attorney in the beneficiary states or can my Florida attorney do this? Thanks
Permalink Submitted by Alan - IRA critic on Fri, 2018-06-08 18:14
If the Roth is large enough to warrant, make the beneficiary a qualified trust (aka see through trust), since assets left in trust will have creditor protection in all states, including from spouses. But for a Roth it is even more critical that the trust be qualified and the trustee provides trust info to the custodian by the 10/31 deadline, or the 5 year rule will apply since ALL Roth IRA owners are deemed to pass PRIOR to their RBD. This could be a testamentary trust established in your will, but you MUST list the trust specifically as beneficiary in the Roth agreement.
Permalink Submitted by fairira on Sun, 2018-06-10 20:26
To Alan:In response to recent post “Inherited Roth IRA Creditor Protection ideas,” on 6/8/18 you stated that “. . . the 5 year rule will apply since ALL Roth IRA owners are deemed to pass PRIOR to their RBD.” I assume you were referring specifically to what could happen in the case of using a see-through trust. If no trust is involved and instead there are designated beneficiaries who begin taking RMD’s annually by Dec. 31 of the year after the year in which a 90 year old RIRA and TIRA owner died, would the 5 year rule apply to their RMD’s?Thank you.
Permalink Submitted by Alan - IRA critic on Sun, 2018-06-10 21:21
No. As long as individual beneficiaries are designated, they can take life expectancy RMDs. But because the Roth owner is deemed to pass prior to RBD (because there IS NO RBD), they could also elect the 5 year rule if they wanted to, although that would rarely be beneficial.