The recent Supreme Court decision on the ‘protection’ of inherited IRAs redraws the landscape of ‘stretch’ or ‘multigenerational’ IRAs. By removing the ‘protection from claim of creditors’ from IRAs passed to the next generation, the court scrambled the advice many financial planners have been giving. The court removed the provision that an ‘inherited’ IRA was exempt from claims of creditors on the deceased’s estate.
Prior to this, beneficiary designations protected the IRA’s values from invasion by third parties. This is a fundamental change. Now the retirement asset is open for the scrutiny of probate. The retiree is now faced with only two methods of preserving this asset to the next generation. The first, and most expensive is to establish an irrevocable IRA trust. The second is to place the asset in an insurance vehicle life a fixed-indexed annuity or a fixed annuity.
Because insurance based products automatically have the protection of claims of creditors, the entire ‘multigenerational’ or ‘stretch provision applies. The entire amount of an asset that is placed in the annuity are PROTECTED FROM CLAIMS OF CREDITORS and IS NOT SUBJECT TO PROBATE.
For more information on this critical change to estate planning, please contact my office at (952) 649-0504.