Santa Barbara Estate Lawyer Explains: Your Inherited IRA May Be at Risk
You’ve carefully built your retirement savings over decades, but did you know that once inherited, these accounts could be vulnerable to creditors? As a Santa Barbara estate lawyer, I’ve seen too many families surprised when inherited retirement accounts they thought were protected ended up exposed to legal claims.
The Supreme Court Changed Everything
In 2014, the Supreme Court’s Clark v. Rameker decision dramatically changed how inherited IRAs are treated. While your own retirement accounts enjoy strong protection from creditors, the Court ruled that inherited IRAs don’t qualify for the same bankruptcy exemptions. This means your carefully saved retirement funds could be at risk once they pass to your loved ones.
Why Inherited IRAs Are Vulnerable
Unlike traditional IRAs, inherited retirement accounts have unique characteristics that make them more susceptible to creditors:
- Beneficiaries can withdraw funds at any time without penalty
- There are no contribution limits
- Required distributions start immediately, regardless of age
- They can’t be rolled over into the beneficiary’s own retirement account
This flexibility, while beneficial in some ways, also means these accounts don’t qualify for the same protections as traditional retirement accounts.
Real-World Impact
Consider this scenario: Your adult child inherits your IRA and then faces a lawsuit or bankruptcy. Without proper planning, those retirement funds you spent decades building could be seized by creditors or included in bankruptcy proceedings. Your legacy of financial security could vanish practically overnight.
Strategic Protection Options
Working with an experienced Santa Barbara estate lawyer, you can implement several strategies to protect inherited retirement assets:
- Standalone Retirement Trusts: These specialized trusts can provide significant protection while maintaining tax benefits
- Spendthrift Provisions: Adding specific language to protect assets from creditors
- Customized Distribution Plans: Structuring how and when beneficiaries receive funds
The Importance of Professional Guidance
Creating these protections requires careful planning and precise legal language. One small mistake could leave your beneficiaries’ inheritance exposed. That’s why working with a knowledgeable Santa Barbara estate lawyer is crucial – we understand both federal regulations and state-specific protections available to your family.
Taking Action
Don’t wait until it’s too late to protect your retirement legacy. Schedule a consultation with our office to review your current beneficiary designations and discuss strategies to protect your hard-earned retirement savings after they pass to the next generation. Simply call (805) 946-1550 to reserve your appointment.
Author Bio
Julianna Malis is the Founder and Managing Partner of Santa Barbara Estate Planning & Elder Law, a Santa Barbara estate planning law firm she founded in 2014. With more than 25 years of experience practicing law, she has dedicated her career to representing clients in a wide range of legal matters, including estate planning, elder law, Medicaid and Medicare planning, probate, and other estate planning areas.
Julianna received her Juris Doctor from the University of the Pacific — McGeorge School of Law and is a member of the California State Bar Association.
