On Thursday, June 12th, 2014, the U.S. Supreme Court in Clark v. Ramiker ruled inherited IRAs are not retirement accounts for purposes of protection from bankruptcy and general creditors.
Why is this case such a big deal in the financial and estate planning world? For many, IRAs may be a large part of their savings and therefore a part portion of their estate. Under Federal and State law, most retirement accounts receive a certain amount of protection from bankruptcy and creditors and it was assumed by many that this protection would extend to inherited retirement accounts. However, the U.S. Supreme Court decided otherwise in Clark v. Ramiker.
So what does this mean? If you leave your IRA to your children or family members, and later on they are sued, end up in bankruptcy, or run into similar issues, then they could wind up losing the account.
The good news is that with smart estate planning and smart IRA planning, you can still leave your IRA (and your other assets) to your family protected from future lawsuits, creditors, divorce, and other life events.