Generally speaking, retirement funds are protected assets when a person files bankruptcy. This generally means they cannot be taken away as part of a bankruptcy. What about a situation where you leave an IRA to a beneficiary who has filed bankruptcy.

The Law May be Unclear

The rulings can vary from state to state but it is a general consensus that the IRA that is left may not be subject to the same protections that would be afforded a retirement account that is in the hands of a person who filed bankruptcy themselves. This means that should you leave your IRA account to a child, grandchild or other beneficiary who has claimed bankruptcy, the IRA may be subject to the bankruptcy proceedings. It seems the Supreme Court has upheld this decision as well.

What to Do

If you are worried about leaving inheritance to a loved one who is having financial difficulties, then you may want to consider alternate options for your assets than leaving them in your will.

Setting up a trust to be created is a good way to ensure that the funds are not seized by the court but are left to your loved one as you intend. When an IRA is left to a trust, the trust is then protected from bankruptcy court. This will ensure that the funds are kept safe for your loved one to use when they need them.

For assistance in setting up a trust, contact Stano Law group.