As I noted in a blog post a couple days ago – –   

On June 12, 2014, the U.S. Supreme Court unanimously ruled that inherited IRAs are not exempt from creditor claims in bankruptcy.  So in general, inherited IRAs do not have as much protection from creditors as many advisors thought they did.  But inherited IRAs can still be protected from creditors in at least two ways:

            (1)        State law creditor exemptions; and          

            (2)        Leaving assets in trust for the intended beneficiary (rather than to the beneficiary himself/herself).

It seems that states having statutes that opt out of the federal bankruptcy exemptions (in favor of their own state-created exemptions) will still protect inherited IRAs.  A limited number of states (including Florida, Alaska, Missouri, North Carolina, Texas and Ohio) offer protection for inherited IRAs.  But it may be unwise to rely on a state exemption because the beneficiary inheriting the IRA may not live in the same state when the exemption is desired.  In any event, Ohio and some other states have provided as much creditor protection as they can for inherited IRAs. 

Another alternative that is still available is for the owner of an IRA to leave the IRA to a trust for the benefit of the intended beneficiaries.  There are a variety of potential downsides to this (including increased complexity, costs and administration, and potential income tax issues), so a trust arrangement should only be considered with the assistance of a qualified professional.


It is best to consult with an attorney experienced in asset protection issues, estate planning and income tax considerations specific to retirement assets whenever you are thinking of leaving retirement assets in trust.