Make Sure To Use An IRA Trust To Protect Your Retirement Assets


With the 2014 Supreme Court ruling that inherited IRAs are not protected in a bankruptcy proceeding, came the understanding that a beneficiary of retirement assets cannot assume that those assets will have the same protections provided by Federal law for their personal retirement accounts.  SEE: (CLARK v. RAMEKER No. 13–299. Argued March 24, 2014—Decided June 12, 2014).  Read the case:  Basically, the Supreme Court said inherited IRAs were not specifically created so that they would provide financial stability for the beneficiary.  Therefore, the rationale for the protections provided to the person who initially created the retirement account is out the window when they pass away.

  • There was always a risk that the inherited IRA might not get the same legal protection as the retirement account we establish for ourselves.
  • Now the inherited IRA vulnerability is just more real.
  • Name a trust as beneficiary to make sure the inherited IRA is protected from a beneficiary’s divorce, creditors and law suits.
  • Name separate trusts for each beneficiary.
  • Make sure that the necessary trust language is used to achieve maximum “Stretch” for RMD from inherited IRA.


  1. Obtain Maximum “Stretch”:  Even though your retirement accounts are being paid to trusts for your children, the IRS will allow for RMDs to be based on the life expectancies of each individual trust beneficiary.  It is very important that your trusts contain the “magic” IRS language to allow for the best tax treatment possible.
  2. Divorce Protection:  It is possible that one or more of your beneficiaries could go through a divorce.  Inherited IRAs are frequently seen by divorce attorneys as an easily accessible pot of money to fund a marital asset settlement.  Now, with the Supreme Court ruling that the inherited IRA should not be seen the same way as personal retirement assets, the inherited IRA will be even more vulnerable.  The IRA Inheritance Trust will protect against a beneficiary losing the inherited IRA through a divorce.
  3. Protection for Minors:  If you have young children or grandchildren who will inherit from  you, a trust will help to insure that the assets that you leave to them will be protected.  Make sure that you direct your IRA and other retirement assets to be added to the IRA Trust so that those assets also gain the needed protections.  With the IRA Inheritance Trust you can name a trustee that ensures that the assets are there for the minors’ benefit but will not be used improperly.
  4. Lawsuit, Creditor and Bankruptcy Protection:  With the Supreme Court putting a big hole in the inherited IRA armor, expect creditors of all sorts to start to look at these accounts as available pots from which to draw payment.
  5. Protection From Losing Government Benefits.  For those individuals who receive government benefits such as Social Security Disability or Medicaid, any asset received as an inheritance can either disqualify them from future benefits or force past benefits to be paid back. With the IRA Inheritance Trust, you can be certain that those monies will be used only for the beneficiary’s special needs and that government benefits will remain intact.
  6. Minimize Future Estate Taxes:  If IRA assets are left to beneficiaries in their individual name, they may be subject to estate taxes when they pass, as the inherited IRA is able to be included in the beneficiaries’ estates. However, if the IRA is left in the IRA Inheritance Trust, it can be structured so that it will never be estate taxable again through the use of your generation skipping transfer tax exemption.
  7. Leave a Legacy in Your Name:  With the IRA Inheritance Trust, you can structure distributions so that a check will be paid to your beneficiaries on a regular basis for the rest of their lives.  This will be part of your legacy and will help insure that they remember you.


The IRA Trust is a great alternative to leaving retirement assets outright to your children.  In this age of litigation and divorce, you cannot be too safe.  These are user friendly, adaptable trusts that will give your children access to the assets while keeping their creditors and divorcing spouses away from them.

Some of the other most common planning considerations are:  Creation of Last Will & Testament, Creation of a Medicaid Asset Protection Trust, use of a Medicaid Compliant Immediate Annuity, qualification of the Family Caregiver Exception, creation of the Caregiver Agreement, Irrevocable Burial Reserve, Monthly Gifting Exception, Elder Law Friendly Financial Power of Attorney, Medical Power of Attorney, Living Will.

Check out our other great articles throughout this site that more specifically address the different ways to protect and preserve your assets.  Click here:  More Blog Articles To Read

For PA Residents:  To request our informative Elder Law Guides click here:  Elder Law Guide Request

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For assistance developing a comprehensive estate plan or nursing home asset protection plan in Pennsylvania, please contact Douglas L. Kaune, Esquire at (610) 933-8069 or email him, click here: Email Doug. Doug’s entire practice is focused on elder law, Medicaid application, estate planning, trust planning, estate administration and protection of clients’ assets from nursing home spending and estate and inheritance taxation.

Unruh, Turner, Burke & Frees, P.C. is a full-service law firm which has three convenient office locations in Phoenixville, West Chester and Paoli, Pennsylvania. The firm primarily services clients in Chester, Montgomery, Delaware, Philadelphia, Bucks and Berks Counties, but can represent clients throughout Pennsylvania.

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