If you’re searching for information about Inherited IRAs, you might be in the midst of probate. So, for our probate clients curious about inherited IRAs, we wanted to let you know that the issue actually made it to the Supreme Court just a few years ago. So, are funds in an inherited IRA technically the same as retirement funds?
The Supreme Court ruled in Clark v. Rameker on the matter. See, the Clarks filed for bankruptcy, but argued that Heidi Clark’s $300,000 that she got from her mother was exempt from the family’s bankruptcy. Eventually, the case made it to the Supreme Court and the Supreme Court looked at an intent of an inherited IRA. They decided that since inherited IRAs aren’t actually set up for the debtor’s retirement, it’s a special situation. They found that inherited IRAs don’t work like ordinary IRAs.
Inherited IRAs don’t fit the definition of a retirement fund, because the beneficiary can’t actually invest more money in the account. Plus, the beneficiary must draw money from it no matter their age. The Supreme Court ruled that allowing a inherited IRAs to be exempt from bankruptcy would totally undermine the purpose of the Bankruptcy Code.
How are Inherited IRAs Different?
Well, with normal IRAs, people can’t withdraw funds at 50 years old without paying a huge penalty. People can withdraw funds from an Inherited IRA at anytime without facing a penalty fee. Plus, an beneficiary of an Inherited IRA actually is forced to take out the entire balance within just a few years of owner’s death or choose to take annual minimum distributions. Another enormous difference is that with a traditional IRA, you can add funds all the time. Remember that’s kind of the point. With traditional IRAs, you put money in regularly for tax incentives. Yet, if you’re the beneficiary an inherited IRA, you can’t actually add funds to it. Meanwhile, you pay taxes only on funds you take from it. The Supreme Court said that Inherited IRAs don’t match the legal definition of retirement funds just because people have the option to use them for retirement. Otherwise, and savings account or checking account that a person eventually uses for funds for retiring would have to also be considered “retirement funds.”
What Might Be Safer Than Inherited IRAs?
So, ultimately, the answer is this: An inherited IRA is not exempt from a debtor’s estate in bankruptcy. So, if you intend to pass along funds to a beneficiary, just know that if your beneficiary ends up with your inherited IRA, it won’t be safe from their bankruptcy proceedings if they should find themselves in that tight spot. Perhaps a Standalone Retirement Trust might be a better option? It really depends. There are many administrative costs with trusts, of course. Your best bet is to meet with an estate planner.
Here at Sentinel Realty Partners, we can refer you to excellent estate planners in our area. If you’re interested in finding ways to ensure your beneficiaries are taken care of after your death we’d happily refer you to a skilled estate planner. Similarly, if your love one has recently passed, we can help streamline the entire California probate process. Our part, of course, is helping you sell your inherited real estate, but since we specialize in probate sales, we also have an entire network of hand-picked probate and estate professionals to make the process easier for you.
Do You Need A California Realtor Specializing In Probate?
We are experts in the probate sale under the probate code and trust law. So, we know the California Probate Code. We won’t let you get lost in it. If you need a realtor in California specializing in probate, please contact us today! We are upfront and honest about the costs of probate. Everyone wants to know about probate fees, but no one wants to talk about them. We will though. Sentinel Realty Partners wants our clients to be fully prepared and fully informed about buying or selling California probate real estate.
We have a list of the absolute best probate lawyers in California available for our customers. Plus, we also have relationships with the most vetted contractors, plumbers and electricians in California. See? We will guide you through every step of the process of selling (or even purchasing) a home involved in probate.
If you are buying a home in California, please have a look at our probate property search. If you need a Los Angeles, Orange County, Riverside, or San Bernardino professional to help you through the probate real estate maze, call us! These waters a murky, and you’ll want a knowledgeable, dependable, responsive team behind you. Check out Sentinel Realty Partners’ client reviews.