[WSBARP] IRA Proceeds

Mon Mar 31 10:40:15 PDT 2014

Warren, 

I have a 59 year old spouse IRA beneficiary who lives in Washington.  Her
husband had a plumbing contracting company (incorporated as an S Corp) and
recently passed away. 
She has a roll over IRA.    No bankruptcy involved. The key question is
whether the Roll Over IRA is protected from her husband's creditors
(assuming that there is personal liability). The responses I have to date,
in the non-bankruptcy situation, is that it is exempt.  Do you agree?

Ralph Maimon 
Law Office of Ralph Maimon, P.S. 
2825 Eastlake Avenue East
Suite 120
Seattle, WA 98102
Tel: (206) 323-0911
Fax: (206) 462-1505  (New Fax Number)

rmaimon at maimonl <mailto:rmaimon at maimonlaw.com> aw.com

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From: wsbarp-owner at lists.wsbarppt.com
[mailto:wsbarp-owner at lists.wsbarppt.com] On Behalf Of Warren Baker
Sent: Friday, March 28, 2014 3:53 PM
To: wsbarp at lists.wsbarppt.com
Subject: RE: [WSBARP] IRA Proceeds

Hi Ralph,

IRC Section 402(c)(9) allows a rollover the deceased spouse’s IRA to a
surviving spouses IRA.  Further, the Treasury Regulations state that the
surviving spouse thereafter treats the IRA as his/her own.  Keep in mind
that there can be both pros and cons to this treatment.  For example, if
the surviving spouse is significantly younger (e.g. under 59 ½ years old)
than the deceased spouse and the surviving spouse might need to take
distributions soon, rolling the IRA into the surviving spouses name might
not be a good idea.  On the other hand, if the surviving spouse is much
older, rollover the funds over could accelerate “required minimum
distributions”.

With regards to creditor issues, the protections depend on the type of IRA
– for example, a SEP IRA is technically covered by ERISA, which generally
grants higher creditor protection (for both original account owner and
inherited owner).  For other types of IRAs, the creditor protection can
depend on the type of debt involved (e.g. bankruptcy vs. non-bankruptcy).
For example, the original accountholder of an IRA can generally have up to
$1M protected from bankruptcy creditors and if, in your situation, the
surviving spouse had rolled the funds over and treated the account as her
own going forward, she would be entitled to this protection (note that the
trend with bankruptcy courts across the country is to favor bankruptcy
creditors when the IRA is treated as an inherited IRA – i.e. a non-spouse
inherits the IRA).  Also, watch out if the IRA has been involved in any
“nontraditional” investments (e.g. real estate, privately-held companies,
etc.).  Courts are starting to realize that these investments have the
potential to raise “prohibited transaction” problems – which, if found,
can result in the retroactive invalidation of the IRA – meaning that the
general creditor protections of the IRA are eliminated – not to mention
horrific income tax / penalties if the IRS finds out about the prohibited
transaction (for more on this, take a look at my article that was in the
most recent WSBA Taxation Law newsletter attached – pardon the
not-so-subtle personal plug!).

The creditor protection issue for IRAs is non-bankruptcy situations can be
much murkier, depending on where the beneficiary of the IRA (i.e. the
person who inherited the IRA) lives.

Of course, an IRA owner that is concerned about his/her beneficiaries’
creditors can leave the IRA to an “IRA Legacy Trust” (either a stand alone
trust or within the IRA owner’s Will) – which can not only provide
additional creditor protection, but also control the beneficiary’s ability
to potentially accelerate IRA distributions in a tax-foolish manner.

Have a good weekend everyone,

Warren L. Baker

Amicus Law Group, PC | 1325 Fourth Avenue, Suite 940 | Seattle, WA 98101

Phone: 206.624.9410 | Fax: 206.515.2084

E-mail:  <mailto:warren at amicuslawgroup.com> warren at amicuslawgroup.com

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From: wsbarp-owner at lists.wsbarppt.com
[mailto:wsbarp-owner at lists.wsbarppt.com] On Behalf Of Ralph Maimon
Sent: Friday, March 28, 2014 2:19 PM
To: wsbarp at lists.wsbarppt.com
Subject: RE: [WSBARP] IRA Proceeds

I understood that to be the case but I could not find a reference.

Ralph Maimon 
Law Office of Ralph Maimon, P.S. 
2825 Eastlake Avenue East
Suite 120
Seattle, WA 98102
Tel: (206) 323-0911
Fax: (206) 462-1505  (New Fax Number)

rmaimon at maimonlaw.com

CONFIDENTIALITY NOTICE: This email message may contain confidential or
privileged information. If you have received this message by mistake,
please do not review, disclose, copy, or distribute the email. Instead,
please notify us immediately by replying to this message or telephoning
us. Thank you.

TAX ADVICE NOTICE: IRS Circular 230 requires us to advise you that, if
this communication or any attachment contains any tax advice, the advice
is not intended to be used, and cannot be used, for the purpose of
avoiding federal tax penalties. A taxpayer may rely on professional
advice to avoid federal tax penalties only if the advice is reflected in
a comprehensive tax opinion that conforms to stringent requirements.

Please contact us if you have any questions about Circular 230 or would
like to discuss our preparation of an opinion that conforms to these IRS
rules.

  _____  

From: wsbarp-owner at lists.wsbarppt.com
[mailto:wsbarp-owner at lists.wsbarppt.com] On Behalf Of Richard Wills
Sent: Friday, March 28, 2014 1:13 PM
To: wsbarp at lists.wsbarppt.com
Subject: Re: [WSBARP] IRA Proceeds

IRA proceeds paid to a designated beneficiary under the IRA agreement are
so exempt.  If the proceeds are paid, for example, to D's estate, they are
not.

On 3/28/2014 12:11 PM, Ralph Maimon wrote:

Listmates

I have a client whose husband with an IRA passed away recently. The
question is simple:  Is the IRA rollover in the wife's name exempt from
creditors claims  (no tax issues here).  

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Information provided on this list should not be considered legal advice.
As with all lists - let the reader beware! No warranties or
representations are made as to the accuracy of any information provided.
All opinions and comments in this message represent the views of the
author and do not necessarily have the endorsement of the Washington State
Bar Association nor its officers or agents. 

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