Question: Outside of bankruptcy (the Supreme Court held recently that inherited IRAs are not creditor-exempt in bankruptcy), what type of protection is available under state law for inherited IRAs (including inherited IRA rollover for spouses)? Answer: There are various state protections available, but the protection for debtors as you can guess vary by state law. Some of the stronger states from a debtor’s standpoint are Alaska, Arizona, Florida and Texas and some of the states offering less protection for debtors are California, Maine, Nevada and North Dakota.
There is no uniform statute for state law protection of IRAs and some state statutes are more vague and appear on their face to protect inherited qualified plans or IRAs, but are, in fact, not very protected.
And just because an IRA receives certain state law protection does not mean other accounts (e.g., 403(b) accounts) receive the same level of protection under state law. For example, some state law protections only apply to debtors who are residents of the state or even U.S. citizens (this may disqualify someone who is a resident non-citizen).
So in order to know for sure, the residency of the debtor and the state law that is applicable becomes of paramount importance.
Comment: Maryland law affords strong protections for IRAs, ROTH IRAs and 403(b) except generally in the case of debts owed to the Dept of Health and Mental Hygiene.
As always, if you have questions or would like to know more about retirement plans and beneficiary restrictions please contact Steven E. Shane at:
firstname.lastname@example.org | 301.575.0313.
Steve provides strategic counseling to clients in need of estate administration, charitable giving and business continuity planning while minimizing estate, gift, and generation-skipping transfer tax exposure. He offers legal guidance to clients on asset protection and the proper disposition of assets in accordance with the client’s objectives, while employing tax planning techniques such as the use of irrevocable trusts, life insurance planning, lifetime gifts and charitable trust. He is also experienced with drafting documents for business planning, the incorporation and application for exemption for Private Foundations and the administration of decedents’ estates.