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    Joshua and Laura Meier Newport Beach Trust and Estate Planning Attorneys Focused on Helping Families with Young Kids
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    Category Archives: Investments

    Supreme Court Decision Makes Inherited IRAs Fair Game in Bankruptcy

    A recent U.S. Supreme Court decision has changed the way inherited IRAs are viewed when it comes to bankruptcy, and calls for those who inherit these retirement account assets to find new ways to protect that inheritance.supreme court

    In Clark v. Rameker, Heidi Heffron-Clark inherited an IRA from her mother. She received distributions from that inherited IRA for several years before filing Chapter 7 bankruptcy. Ms. Heffron-Clark relied on the Bankruptcy Code, which states that IRAs are exempt up to $1.245 million from bankruptcy, to claim that her inherited IRA qualified for the retirement account exemption.

    In a unanimous ruling, the Supreme Court disagreed, distinguishing inherited IRAs from other IRAs established by an individual for his or her own retirement. Because the beneficiary of an inherited IRA cannot make contributions to that IRA, an inherited IRA does not provide any tax incentives, which is an important purpose of other IRAs. Since the beneficiary of an inherited IRA has different rules for taking distributions than other IRA owners, this also establishes inherited IRAs as different from other IRAs. These differences, the Court reasoned, are enough to disqualify an inherited IRA from qualifying for the federal bankruptcy exemption.

    Even though some states offer protection for inherited IRAs in bankruptcy, a move to another state that does not offer this protection can endanger inherited IRA assets. IRA owners who wish to provide their heirs with valuable protection should consider naming a trust as beneficiary of IRA assets instead of heirs, who could instead be designated as beneficiaries of that trust.

    The Court did not address spousal inherited IRA beneficiaries; however, since a spouse is allowed to roll over an inherited IRA into his or her own account, this may qualify a spousal inherited IRA for the bankruptcy exemption for retirement funds.

    We can help you plan for the safe, successful transfer of wealth to the next generation. Call your Newport Beach Estate Planning Attorneys today to schedule a time for us to sit down and talk about an Achieve Your Dreams Planning Session, where we can identify the best strategies for you and your family to ensure your legacy of love and financial security.

    Family Limited Partnerships – Worth Another Look (Especially This Year)?

    A FAMILY limited partnership was once a rather esoteric way for wealthy families to centralize the management of real estate and various pots of money. But this is not a normal tax year.

    Sometimes managing family assets is like, well, running a business. Then again, some families actually do run their families like businesses and have enjoyed significant tax advantages by doing so through the use of the Family Limited Partnership.

    A recent article in The New York Times titled “In an Unusual Tax Year, the Wealthy Turn to Partnerships” explores the power of the Family Limited Partnership (FLP). Properly structured, the FLP binds the family into a business arrangement (which is not always a good thing for a family) and, in doing so, allows for the longevity of a business entity, the decreased valuation allowable to private companies, and the simple ability to pool resources for higher investments.

    When used correctly, there is much to be said about the FLP structure. On the other hand, there also are limitations and even outright warnings. For one, no business can safely exist without a purpose, and to form your FLP without a discernible purpose beyond avoiding estate taxes will certainly raise the ire of the IRS. Furthermore, as already intimated, it means the family must act with the swiftness and assurance of a business in their investments. Unfortunately, not all families are capable of acting like a “business.”

    In the end, we face an uncertain and unpromising future in estate and gift laws (and a veritable “fiscal cliff” as a nation for related reasons). Nevertheless, at present we have extremely favorable lifetime gift tax exemptions ($5.12 million) for the remainder of 2012.

    This may be the perfect storm to consider harnessing this powerful tool to generate some security for your family and family investments.

    Contact Meier Law Firm to discuss a Family Limited Partnership and any of you other estate planning needs.

    Reference: The New York Times (July 6, 2012) “In an Unusual Tax Year, the Wealthy Turn to Partnerships




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