Individual retirement accounts are protected from creditors to varying degrees under state and federal bankruptcy laws.
A recent U.S. Supreme Court case (Clark v. Rameker, June 12, 2014) held that “inherited” IRA’s are not protected in bankruptcy. The Court undertook a scholarly analysis to reach its decision that an inherited IRA is not a retirement account and is thus not eligible for creditor protection.
Even in Florida, which provides 100% protection for the IRA and for any distributions from the IRA, would you now be confident that a U.S. court will always recognize that protection? Or will a court find some loophole to satisfy the creditor’s claim?
What can you do to protect an inherited IRA and to enhance state and bankruptcy law protection provided for your own IRA? Following the asset protection rule of “removing the ability of any U.S. court to disrupt your planning = protection,” IRA assets can still be fully and effectively protected.
How? IRA cash and securities are placed beyond the reach of any U.S. court. This can be accomplished by causing the IRA (using a specialized U.S. IRA custodian) to establish a single-member offshore limited liability company governed by properly structured operating documents containing specific protective provisions. The IRA contributes (transfers) all of its cash and securities to the LLC in exchange for a 100% ownership interest (member interest) in the LLC, leaving the U.S. IRA custodian directly holding only a member interest in the offshore LLC.
The LLC is now the “investment” of the IRA. As long as no significant litigation threat exists, the LLC assets may continue to be held at the same U.S. financial institutions (now titled in the name of the LLC) and may continue to be managed by the same investment advisor(s) as before.