Why Would You “Roll the Dice” With Your Most Valuable Asset?

April 18, 2015 - Posted by: admin - In category:

taxes - No Responses

Your most valuable asset could end up in the wrong hands. Why take the chance?

We have been talking recently about the idea of leaving inherited retirement accounts to children and others directly and thereby giving such individuals the freedom to choose how to utilize such accounts. We noted yesterday that in most instances, such children or other beneficiaries will use such free agency to cash out the retirement accounts immediately (notwithstanding any prior understanding with parents to the contrary).  Beyond the first issue of giving a beneficiary the “cash out” option and thereby such beneficiary is then deprived of the benefit of having his or her own retirement account, what else can go wrong with this scenario? Many things can go wrong, including things that we are all at risk for, such as:

  • bankruptcy
  • divorce
  • law suits
  • disability

In each of the aforementioned situations, if a beneficiary of an inherited retirement account has withdrawn such monies from the inherited retirement account (i.e. has taken the cash out option), then each and every dollar actually received by the beneficiary (net of applicable income taxes) will be available to: (a) pay creditors in personal bankruptcy; (b) pay creditors in a business bankruptcy (depending on other factors); (c) pay a divorcing spouse as part of the divorce settlement; (d) perhaps disqualify a disabled person from applicable governmental benefits in the event of disability or other occurrence. To further rain on the parade, even if the monies are still in the inherited retirement account that is directly owned at this time by the child or other beneficiary (rather than being owned by an IRA Trust), in many of the aforementioned situations of bankruptcy, divorce, lawsuits and/or disability, such inherited retirement funds will again be an available asset that will end up in the wrong hands.

To state the obvious, no parents are sitting here today saving for retirement, while at the same time hoping that whatever is left over in their retirement accounts after their passing ends up with an ex-spouse, a bankruptcy creditor, and/or a plaintiff’s attorney and plaintiff in a lawsuit. This is NEVER what is desired or intended! And yet, far too often, the risk of this occurring is very real. Far too often, this risk becomes a reality. So again, consider why anyone would ever take this risk with their largest and most important asset.

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