Serving Clients Throughout Wisconsin & Illinois 

Does A Retirement Plan Pass Through Probate? Part Two

In a landmark, unanimous 9-0 decision handed down on June 12, 2014, the United States Supreme Court held that inherited IRAs are not “retirement funds” within the meaning of federal bankruptcy law. This means they are available to satisfy creditors’ claims. This case an adult child, who had inherited her IRA from her mom and subsequently, due to a change in the business environment had to declare personal bankruptcy due to her failing business.

What Types Of Trusts Are Useful In Protecting Retirement Plans?

There are a number of schools of thought here. In our practice, we feel a revocable living trust is not a good vehicle to handle retirement plans. Often these are not drafted with the appropriate language to comply with the IRS service regulations to be what’s called a “see-through trust”. A Retirement Plan Trust is specifically drafted to comply with the service regulations and meet all the criteria so that if this trust is designated as the beneficiary, you will be able to preserve the tax deferral for those named beneficiaries to get the stretch advantages.

A key issue is how much to you trust your beneficiary’s to make the financially sound decision of a stretch IRA and how much can you rely on them to make the required timely elections and transfers to secure the continued tax deferral? If you leave it up to them, just as a named beneficiary, they can choose to cash it out if they would like to, and often that is a very bad decision. Often when you are looking at a large amount of money, beneficiaries often make the wrong decision. With a retirement account trust, you can control the choice, requiring that the beneficiary stretch out that IRA over their lifetime. There are further advantages to the inheritance trust, and it primarily comes from a recent decision of the Supreme Court.

In a landmark, unanimous 9-0 decision handed down on June 12, 2014, the United States Supreme Court held that inherited IRAs are not “retirement funds” within the meaning of federal bankruptcy law. This means they are available to satisfy creditors’ claims. This case an adult child, who had inherited her IRA from her mom and subsequently, due to a change in the business environment had to declare personal bankruptcy due to her failing business. As the primary saver our IRAs, our retirement savings, are protected from recovery in a bankruptcy. By relying on the beneficiary designation, there is no bankruptcy protection for that inherited money that the child may receive. If it comes in the structure of a retirement plan trust, not only can we influence the choice of the child to make the right financial decision, but we can draft it in language such that we can re-invoke those protective qualities in the event of a bankruptcy by using a Retirement Plan Trust.

We can also draft protective qualities in the event of a divorce where we can make sure that any inherited IRA, or any retirement funds, stay with your child and not the future ex-spouse.

For more information on Retirement Plans & Probate, a initial consultation is your next best step. Get the information and legal answers you are seeking by calling the estate planning lawyers of Estate Law Partners, LLC.

We assist clients with probate matters in Illinois and can handle all matters related to estate planning, trusts, and probate matters across Illinois and Wisconsin. 

Request a consultation with one of our experienced attorneys to discuss strategies to protect your retirement plan for your family.

Categories

Quality Counsel

Experience You Can Count On

What Sets Us Apart?

Our Philosophy
  • Cutting Edge
  • Authentic
  • Respect
  • Empathy

The Stories That Matter

Read Our 5 Star Reviews
    She was very responsive and always made sure to answer any questions we had.

    “Our experience with Danielle was very professional and efficient even with having to do everything through zoom due to Covid. She was very responsive and always made sure to answer any questions we ha ...”

    - Shannon
    [Matt] was very engaging and rephrased any questions we didn't udnerstand.

    “Matt was able to answer my questions without all the legal mumbo jumbo. He was very engaging and rephrased any questions we didn't udnerstand. Due to COVID pandemic, we were limited to a phone ...”

    - Steven
    [Matt] was very helpful...

    “He was very helpful in answering our questions and providing guidance that we understood.”

    - Troy
    He took the time to understand our goals and our family situation. He was friendly, thorough, and very knowledgeable.

    “What a great attorney! He explained everything to us in plain English, with no legal jargon. He took the time to understand our goals and our family situation. He was friendly, thorough, and very ...”

    - Mark
    He was wonderful...they asked all the right questions, were patient with our back and forth, and everything was wrapped up successfully.

    “My husband and I needed a will and turned to this firm for their help after the firm had invited us to a "what is estate planning all" about dinner/meeting. Having a will was something we knew we ...”

    - Kris
/

Take the Next Step

Schedule Your Consultation Today
  • Please enter your first name.
  • Please enter your last name.
  • Please enter your phone number.
    This isn't a valid phone number.
  • Please enter your email address.
    This isn't a valid email address.
  • Please enter your address.
  • Please enter your city.
  • Please make a selection.
  • Please enter your zip code.
    This isn't a valid zip cide.
  • Please make a selection.
  • Please make a selection.
  • Please enter a message.