The Journal of Accountancy explores asset protection of retirement accounts after Clark v. Rameker. The article begins as follows:
In June, the Supreme Court in Clark v. Rameker, No. 13-299 (U.S. 6/12/14), said that just because funds are held in an account called an individual retirement account (IRA), it doesn’t necessarily mean that they are retirement funds. And if they are not retirement funds, they are not excluded from a bankruptcy estate under Section 522(b)(3)(C) of the Bankruptcy Code (11 U.S.C. §522(b)(3)(C)).
That section of the Bankruptcy Code provides that a debtor may exempt from the bankruptcy estate retirement funds “to the extent that those funds are in a fund or account that is exempt from taxation” under Sec. 401, 403, 408 (traditional IRAs), 408A (Roth IRAs), 414, 457, or 501(a).
This article examines the implications of the Supreme Court’s Clark decision, as well as treatment of IRAs outside bankruptcy under state laws. It suggests how taxpayers and their advisers may nonetheless achieve a degree of asset protection from creditors for inherited IRAs. Specifically, with either of two types of “see-through” trusts, an IRA owner may designate an individual as the trust’s beneficiary to receive IRA distributions. A “conduit trust” protects the balance of the inherited IRA from creditors of the trust beneficiary. Alternatively, a discretionary or “accumulation” trust also provides asset protection while also allowing the trustee discretion in making minimum required distributions.
Read more at Asset protection of retirement funds after Clark.