Noncompliant IRA Trusts and Circular 230 Issues

• Author: Seymour Goldberg
• Profession: Senior partner in the law firm of Goldberg & Goldberg, P.C., Woodbury, New York
• Pages: 135-148

135

NONCOMPLIANT IRA

TRUSTS AND CIRCULAR

230 ISSUES

Many individuals have accumulated a considerable amount of wealth in

their individual retirement accounts (IRAs). This can happen because

the IRA account holder rolled over or directly transferred retirement

assets that were accumulated in his / her qualified plan accounts such as

a 401(k), a 403(b) arrangement, or a 457(b) governmental plan to his /

her IRA account.

These retirement accounts may represent the major portion of a

taxpayer’s wealth and must be considered in developing an estate plan

for the client. Often clients are concerned about the welfare of their

beneficiaries after they are gone.

As a result of the Supreme Court opinion in Clark v. Rameker issue

on June 12, 2014, it was held that inherited IRAs are not considered to

be “retirement funds” that are protected under the bankruptcy code.

This opinion is significant especially if the nonspouse beneficiary of an

inherited IRA account has actual or potential problems with his / her

creditors.

Some states have enacted legislation that protects inherited IRAs

from creditors of the nonspouse beneficiary. These states include Alaska,

Arizona, Florida, Missouri, North Carolina, Ohio, and Texas. The non-

spouse beneficiary, however, must satisfy certain domiciliary require-

ments in order to protect his / her inherited IRA accounts in a protected

state. There is nothing to stop additional states from amending their

laws from time to time to protect inherited IRAs from creditors of the

nonspouse beneficiary.

The Supreme Court did not address the issue regarding a spouse

beneficiary who treats the IRA as a beneficiary IRA and does not transfer

or roll over the IRA into a spousal rollover IRA. It is generally best for