Retirement accounts bypass probate, but not bankruptcy court

When you are planning your estate, you have to decide who will get your assets when you die. For some assets, such as financial accounts and retirement accounts, you outline who will get these by naming beneficiaries on the policy. These policies don't usually have to go through the probate process.

Oklahoma residents might be interested to learn how a recent ruling by the Supreme Court might make them think twice about who they name as the beneficiary for some retirement accounts.

The Supreme Court ruling deals with a woman who received an inherited individual retirement account from her mother. It was worth around $450,000 when the beneficiary received it in 2001. By 2010, the IRA was only worth around $300,000. The woman ended up filing for bankruptcy in 2010.

As part of her bankruptcy, the woman asserted that the IRA she inherited from her mother should be exempt from creditor claims. The Supreme Court disagreed with the woman's claims. The court ruled that the IRA doesn't qualify for the retirement account exemption because the woman didn't have to wait until she was retired to access the funds. The Supreme Court ruled that creditors could be paid using the funds in the inherited IRA.

If you are wondering how this affects your estate planning, you have to think about what could happen to your hard-earned retirement account if the person you leave it to ends up filing for bankruptcy. The funds in the IRA wouldn't necessarily go to your loved one for the purpose intended. Instead, your funds could end up being used to pay off old debts if the person files bankruptcy.

Source:, "Supreme Court Finds Inherited IRAs Not Protected In Bankruptcy" Deborah L. Jacobs, Jun. 12, 2014

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