Protecting Your Heirs from Creditors and More

Filed under: Estate Planning

Multi Generation Family Sitting On Garden SeatWe all want as much time as possible with our families. But if and when the inevitable happens, and we pass away, we hope that our assets pass smoothly to our surviving spouse, children, or other heirs. That’s why the following scenarios often surprise those who inherit Individual Retirement Accounts (IRAs) or other assets.

Robert passed away three months ago, and left his IRA to his wife Debra. Since then, the phone hasn’t stopped ringing, and threatening letters are arriving in the mail. Creditors want “their share” of the money, and Debra would be left with very little if they get their way. Now she has to fight these creditors, possibly in court.

Jane, a widow, passes away not long after her husband. Their IRA passes to their only child, Kaitlyn. It just so happens that Kaitlyn’s marriage is on the rocks, and her husband files for divorce six months later. Now he’s trying to claim half of her inheritance! Surely a judge will see through this greedy ploy, but in the meantime Kaitlyn must spend thousands of dollars on legal fees to defend herself.

These are just two possible pitfalls of passing your unused IRA funds directly to your heirs. Creditors, greedy former spouses, and other dangers can happen to anyone. Fortunately, there is a way to protect your heirs’ inheritance, and it’s a simple step you can take with an estate planning attorney right now.

By placing your IRA into a Retirement Protector Trust, you can place a barrier between the funds and any nefarious individuals who might wish to take advantage of your beneficiary. This option is available to those who opt to stretch out retirement plan distributions over their expected lifetimes. There are unique tax advantages to taking this approach as well, and stretching out distributions can actually mean that your heirs receive much more money over the course of their lifetimes.

Of course, stretching out IRA distributions, along with the Trust itself, are both subject to numerous rules. Before making any big decisions, schedule a meeting with our estate planning attorney to discuss your concerns and possible solutions.

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