Is an inherited IRA protected from creditors?
Retirement accounts are protected from creditors in Washington state. Lawsuit judgment? Bankruptcy? Your retirement savings is golden. But what if you inherit an IRA from somebody else (besides your spouse)?
An inherited IRA in Washington, and most other states, is not protected from creditors or bankruptcy. The basic reason for this: it wasn’t your retirement savings. With some asset protection trust planning, creditor protection can be passed along with your IRA. Check out the video for some more information.
Colin Ley is a Seattle asset protection attorney. He is also the co-founder of LayRoots along with his wife, Shreya.
Inherited IRA video transcript:
Hi. Colin Ley here with LayRoots. I am answering a question about inherited IRAs. As an asset protection attorney, people are asking me if their IRA that they’re leaving to their loved one will be protected from creditors. Washington state is a pretty cool place for IRAs and other retirement accounts. The reason is is that any type of retirement account, IRA, 401k, anything like that, they are protected from creditors. Now those types of accounts, you’re going to leave a beneficiary designation, you know, who’s going to inherit that account when you pass away. People wonder if that creditor protection passes down to the person who inherits your account, and the answer is no. If you just name a person to inherit that IRA account outright, then they do not receive that creditor protection.
Essentially an IRA means a retirement account, so the theory behind protecting the account from creditors is that it’s your retirement account. It’s your retirement funds. When you pass that along to somebody else, it’s no longer really considered a retirement fund so it’s not protected. It can be protected though. Really all you have to do is do some trust planning ahead of time. Instead of leaving that asset, that account, to a person individually as a person, you could leave it to a trust that then benefits that person and that way you can work in some of that asset protection, creditor protection, for them. As a result, it is a great gift that you can give.
If you have any questions, shoot them over. Finally, thanks for watching. Take care.