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Caution: Creditors Have Easy Access to Inherited Retirement Accounts

Do you have IRAs or other retirement accounts that you plan to leave to your loved ones?  If so, proceed with caution. Unlike personally owned retirement accounts, inherited retirement accounts do not have asset protection, meaning they can be seized by creditors.

How Can Inherited IRAs Be Protected?  Enter the Standalone Retirement Trust

Fortunately, retirement accounts can be protected- but only if you take action. Many people like you are using Standalone Retirement Trusts (SRT) to protect retirement assets.  The SRT is a special type of trust just for retirement accounts.

A properly drafted SRT:

  • Protects the inherited retirement accounts from creditors, as well as predators and lawsuits
  • Ensures inherited retirement accounts remain in your family and out of the hands of a daughter-in-law or son-in-law or former daughter-in-law or son-in-law;
  • Allows for experienced investment management and oversight of the assets by a professional trustee
  • Prevents the beneficiary from gambling away the inherited retirement account or blowing it all on exotic vacations, expensive jewelry, designer shoes, and fast cars;
  • Enables proper planning for a special needs beneficiary
  • Permits you to name minor beneficiaries, such as grandchildren, without the need for a court-supervised guardianship

meanwhile it also

  • Facilitates generation-skipping transfer tax planning to ensure estate taxes are minimized or even eliminated at each generation of your family.

The Bottom Line on Protecting Inherited IRAs

Although inherited retirement accounts do not have great creditor protection, we are here to help you navigate the best strategy for protecting your retirement accounts. Contact Lewman Law today to protect your inheritance.

Downloadable PDF Diagram-What-Can-Happen-Without-a-Standalone-Retirement-Trust

Filed under Estate Planning Tips

3 Liability Planning Tips for Physicians

You probably know that the practice of medicine is a profession fraught with the risk and need for liability planning.  It’s not just medical malpractice claims either (although those are certainly scary enough). It’s the entire scope of risk from being in business, including employment-related issues, careless business partners and employees, and contractual obligations, as well as personal liabilities. Unfortunately, in our litigious society, these liability risks are not unique to physicians, although physicians are a frequent target.

However, here we have three important liability planning tips for physicians to protect their hard-earned money.

Tip #1 – Insurance is Always the First Line of Defense Against Liability

Liability insurance is the first line of defense against a claim. Liability insurance provides a source of funds to pay legal fees as well as settlements or judgments. Types of insurance you should certainly consider are:

  • Homeowner’s insurance
  • Property and casualty insurance
  • Excess liability insurance (also known as “umbrella” insurance)
  • Automobile and other vehicle (motorcycle, boat, airplane) insurance
  • General business insurance
  • Professional liability insurance
  • Directors and officers insurance

Tip #2 – State Exemptions Protect a Variety of Personal Assets from Lawsuits

Each state has a set of laws and/or constitutional provisions that partially or completely exempt certain types of assets owned by residents from the claims of creditors. While these laws vary widely from state to state, in general, the following types of assets may be protected from a judgment entered against you under applicable state law:

  • Primary residence (referred to as “homestead” protection in some states)
  • Qualified retirement plans (401Ks, profit sharing plans, money purchase plans, IRAs)
  • Life insurance (cash value)
  • Annuities
  • Property co-owned with a spouse as “tenants by the entirety” (only available to married couples; and may only apply to real estate, not personal property, in some states)
  • Wages
  • Prepaid college plans
  • Section 529 plans
  • Disability insurance payments
  • Social Security benefits

Tip #3 – Business Entities Protect Business and Personal Assets from Lawsuits

Business entities include partnerships, limited liability companies, and corporations. Physicians who are business owners need to mitigate the risks and liabilities associated with owning a business above all, and real estate investors need to mitigate the risks and liabilities associated with owning real estate, through the use of one or more entities. The right structure for your enterprise should take into consideration asset protection, income taxes, estate planning, retirement funding, and business succession goals.

Business entities can also be an effective tool for protecting your personal assets from lawsuits. In many states, in addition to the protections offered by incorporating, assets held within a limited partnership or a limited liability company are protected from the personal creditors of an owner. In many cases, the personal creditors of an owner cannot step into the owner’s shoes and take over the business. Instead, the creditor is limited to a “charging order” which only gives the creditor the rights of an assignee. In general, this limits the creditor to receiving distributions from the entity if and when they are made.

Final Advice for Liability Planning

Use liability insurance, exemption planning, and business entities together to create a multi-layered liability protection plan. Our firm has experience with helping physicians, professionals, business owners, real estate investors, board members, and retirees create and—just as important—maintain a comprehensive liability protection plan.  Call Lewman Law if you’d like to make sure you have the right liability planning in place.

Filed under Legal Services