In a prior blog earlier this week, we mentioned that the U.S. Supreme Court has granted a petition to decide upon whether inherited “retirement funds” are protected from bankruptcy proceedings. In a nutshell, if they are not deemed protected, then any retirement funds you leave to your beneficiaries upon your passing will be available to pay creditors during your beneficiary’s bankruptcy proceedings indefinitely. Arguably, the only way to ensure your protect your beneficiary’s inheritance of any retirement fund assets would be to utilize properly drafted inheritance trusts.
This could be a “no-brainer” for those of you who are leaving your retirement funds to a non-spouse beneficiary. However, if you are primarily leaving your retirement fund assets to your spouse, there may be more to consider beyond simple creditor protection. With the American Taxpayer Relief Act of 2012 (“ATRA”) making portability of estate tax exemptions among spouses permanent, you also need to consider whether its advantages of maximizing tax deferral may outweigh any perceived concerns over creditor protection.
Click here to learn more about how to weigh the advantages and disadvantages of using portability.
Of course, please keep in mind that retirement account types differ greatly, even among each other and the types of planning strategies that may be available. It is always best to speak to your financial advisor and an experienced estate planning attorney to determine what planning strategies are most appropriate for your specific retirement plans as well as your family situation and associated concerns and goals.