Texas Estate Planning

When You Inherit an IRA

One of the biggest estate administration mistakes that people make after someone passes away, concerns something that is not technically part of the estate at all. It has to do with inherited IRAs.

Because these accounts are given to beneficiaries directly and they do not go through probate, they are not part of the estate.

However, the importance of IRAs to overall inheritances can be enormous.  Therefore, it is vital that their administration be carefully considered.

If you are the person named as the IRA beneficiary, you have some decisions to make, as the Wills, Trusts & Estates Prof Blog discusses in "Practical Issues When an IRA Owner Dies."

The biggest thing to understand is that there are tax consequences for any decisions made about what to do with the IRA. Those consequences are not the same for everyone.

They depend on the relationship between the beneficiary and the deceased. These tax consequences are big enough, that it is important to seek professional tax advice and to do so quickly.

There are penalties, if decisions are not made within certain time limits.

If you are not certain who to talk to about what to do with an inherited IRA, then talk to the attorney who is assisting with the administration of the estate.

The attorney can help direct you to a professional who can assist.

Reference: Wills, Trusts & Estates Prof Blog (Oct. 4, 2017) "Practical Issues When an IRA Owner Dies."

When You Inherit an IRA

One of the biggest estate administration mistakes that people make after someone passes away, concerns something that is not technically part of the estate at all. It has to do with inherited IRAs.

Because these accounts are given to beneficiaries directly and they do not go through probate, they are not part of the estate.

However, the importance of IRAs to overall inheritances can be enormous.  Therefore, it is vital that their administration be carefully considered.

If you are the person named as the IRA beneficiary, you have some decisions to make, as the Wills, Trusts & Estates Prof Blog discusses in "Practical Issues When an IRA Owner Dies."

The biggest thing to understand is that there are tax consequences for any decisions made about what to do with the IRA. Those consequences are not the same for everyone.

They depend on the relationship between the beneficiary and the deceased. These tax consequences are big enough, that it is important to seek professional tax advice and to do so quickly.

There are penalties, if decisions are not made within certain time limits.

If you are not certain who to talk to about what to do with an inherited IRA, then talk to the attorney who is assisting with the administration of the estate.

The attorney can help direct you to a professional who can assist.

Reference: Wills, Trusts & Estates Prof Blog (Oct. 4, 2017) "Practical Issues When an IRA Owner Dies."

Can Inherited IRAs Be Impacted By Bankruptcy?

Does an "inherited" retirement account remain a retirement account for the intended heir? This may sound like a rhetorical question, but it is currently one before the U.S. Supreme Court in the matter of Clark et ux. V. Rameker et al. The decision could have important consequences for those who are looking to leave an IRA to their heirs – and NOT to the heir's creditors. This issue was explored by Reuters in a recent article titled “U.S. high court to chart fate of inherited IRAs in bankruptcy.” You see, the Clarks inherited a $300,000 IRA and then went into bankruptcy to the tune of some $700,000. Consequently, when the bankruptcy trustee became mighty interested in the IRA, the Clarks cried foul. As a general rule, IRAs are exempt from many bankruptcy proceedings of the account owner. Some courts have upheld this protection even when the account is inherited by one who is not yet a retiree and is not the account owner, but still complies with the strict distribution requirements for inherited IRAs. Other courts have been less favorable and now it is up to the highest court. It may seem strange to think about bankruptcy when planning for the eventual distribution of your IRA to heirs. After all, leaving your heirs behind is one thing, but ensuring that they are protected is a still greater step. How will the Supreme Court determination affect you? Reference: Reuters (November 26, 2013) “U.S. high court to chart fate of inherited IRAs in bankruptcy”