Wednesday, July 23, 2014

Are Inherited IRAs Protected From Creditors?

The United States Supreme Court addressed this question in the context of bankruptcy laws on June 12, 2014 in its decision in Clark v. Rameker.  In that case, the question presented was whether funds contained in an inherited IRA qualify as “retirement funds” within the meaning of the federal bankruptcy exemption.

In short, the United States Supreme Court held that inherited IRAs do not constitute “retirement funds.”  In other words, unlike traditional or Roth IRAs that are exempt from a person’s bankruptcy estate and thereby not subject to creditor attack, inherited IRAs are not so protected.  Thus, creditors can claim funds held in an inherited IRA in bankruptcy situations.

In finding that inherited IRAs are not “retirement funds,” the United States Supreme Court based its conclusion on three legal characteristics of inherited IRAs not indicative of traditional or Roth IRAs.  First, the Court reasoned that “the holder of an inherited IRA can never invest additional money in the account.”  According to the Court, this runs contradictory to the purpose of retirement funds in that they are intended to provide tax incentives for regular contributions.

Second, the Court reasoned that inherited IRAs are not funds set aside for retirement given the fact that inherited IRA account holders are required to withdraw money from the inherited IRA account regardless of the account holder’s proximity to retirement.  This feature results in a diminution of the inherited IRA account’s value, which according to the Court is contrary to the purpose of retirement funds.

Third, the Court reasoned that inherited IRAs are different than traditional and Roth IRAs in the sense that holders of an inherited IRA can withdraw the account balance, up to the whole thereof, at any time.  To the contrary, traditional and Roth IRA account holders are subject to penalties for most withdrawals made prior to attaining the age of 59 ½.  Thus, traditional and Roth IRA account holders are encouraged to leave such account funds untouched prior to retirement age.  Such is not the case with inherited IRAs.  For the reasons above, the United States Supreme Court held that inherited IRAs are not “retirement funds” and therefore are subject to creditor claims in bankruptcy. 

Nevada, like many other states, has opted out of the federal bankruptcy exemptions and instead adopted its own exemptions, save for a couple of exceptions.  In Nevada, up to $500,000 in certain retirement accounts is exempt from execution.  However, Nevada law does not specifically exempt inherited IRAs.  Even if a particular state does protect inherited IRAs, there is no guarantee that each IRA beneficiary will never move from that state to a state that does not protect inherited IRAs.  Accordingly, it is now important to consider whether to designate a trust as the beneficiary of IRAs and qualified accounts for asset protection purposes.  If you have questions in this regard, please contact our offices.

Friday, July 18, 2014

Nevada Transplants-The Need For An Estate Plan Check-up

According to a recent news article, the vast majority of the recent population growth in Clark County, Nevada, is from an influx of baby boomers relocating from different states. This trend is expected to continue as baby boomers reach retirement.  A baby boomer is commonly defined as a person born during the post World War Two baby boom period of 1946 to 1964.  Most baby boomers have established estate plans consisting of revocable trusts, last wills and testaments, powers of attorney and living wills.  The potential problem is that these documents were prepared pursuant to the state law where they were residing at the time. State law governing these type of documents can vary substantially. For example, Nevada is a community property state, one of only nine (9) community states in the nation.  A person can also incorporate certain Nevada trustee powers in his or her revocable trust by reference. However, almost all revocable trust agreements provide that the law of the state in which the person establishing the trust is residing at the time of the establishment of the trust controls the administration of the trust. 
Another potential problem is powers of attorneys and living wills that have been prepared to conform to non-Nevada law.  A health care power of attorney in which you appoint someone to make health care decisions for you and set forth a statement of desires regarding your health care, is particularly sensitive to state law. The same is true for a living will that states your intentions regarding life-sustaining treatment such as hydration and nutrition when you have an incurable or terminal condition.  (In fact, a living will is called a “Directive To Physicians” in Nevada.)  Some states are very liberal regarding your health care options and some states are very conservative.  If you have a health care power of attorney and a living will that was prepared in conformity with say, Michigan law or some other non-Nevada state law, a Nevada health care provider may not accept them.  Needless to say, this can have very serious ramifications for you and your family. 
The answer is a simple estate plan check-up.  The Jeffrey Burr Law office provides a free one-half hour consultation during which an estate planning attorney can review your current estate plan documents.  All estate planning attorneys at the Jeffrey Burr Law office are certified public accountants or hold advanced degrees in taxation.  Although a periodic estate plan check-up is always a good idea because of changes in circumstances or changes in Nevada or federal law, an estate plan check-up is especially important to someone moving to Nevada.
-Attorney John R. Mugan


Wednesday, July 16, 2014

Save the Date!!

Save the Date!!

ASDO Caregiver Conference
Wednesday, October 22nd 2014
8:30 AM — 4:00 PM
2716 N. Tenaya
Las Vegas, NV 89128
5 CEU's available
Call (702) 363-7566 to register!

orkers & Long Term Care Administrators

Call (702) 363-7566 for Registration and Sponsorship Information

Wednesday, July 9, 2014

Holographic Wills in Nevada

A holographic will is a handwritten last will and testament written and signed by the Testator.  Nevada law provides:
NRS 133.090  Holographic will.
1.  A holographic will is a will in which the signature, date and material provisions are written by the hand of the testator, whether or not it is witnessed or notarized. It is subject to no other form, and may be made in or out of this State.
As such, holographic wills are valid if the will is (1) signed, (2) dated and (3) the material provisions are written by the person creating the holographic will.
Even though holographic wills are valid in the state of Nevada, they are often not recommended for several reasons:
  • Probate Avoidance.  Although holographic wills may be valid as to the disposition of the testator’s assets, the creation of a holographic will does not help a person avoid probate.  Probate is the court supervised process to pay creditors and distribute a person’s assets to beneficiaries.  Most attorneys advise their clients to avoid probate if possible because it is a long and expensive process.
  • Admitting the holographic will to court.  NRS 136.190 provides that “a holographic will may be proved by authentication satisfactory to the court.”  Even though a holographic will may be valid under the holographic will statute, the court will not accept the will until it is “proved by authentication satisfactory to the court.”  This means that the court must have evidence sufficient to prove that the will was actually written by the testator.  This generally requires affidavits from parties familiar with the testator or an analysis from a handwriting expert.  This process can be time consuming and expense. 
  • Legal advice.  Generally when a person creates their own will, they do so without legal advice.  Many of the holographic wills that we see in our office are either done incorrectly or lack important provisions that are usually found in a will.  A will is an important document that speaks for a person when they are no longer able to speak for themselves.  As such, proper legal advice is key to creating a functional will.
Holographic wills are valid in Nevada and can serv an important purpose if used properly.  Should you have any questions regarding holographic wills in Nevada, feel free to contact our office.

Tuesday, July 1, 2014

JEFFREY BURR named 2014 Mountain States Super Lawyer

Congratulations to Jeffrey Burr for being named as Moutain States top 100 lawyers for 2014 by Super Lawyers Magazine.