October 19, 2016
FOR IMMEDIATE RELEASE:
David Disraeli, President of The Personal CFO, Inc. and expert on asset protection says that contrary to popular belief, IRA’s and other qualified plans may be pierced by a judgement creditor.
In Texas and most other states, an IRA is an “exempt” asset much like a homestead. This means that a judgment creditor may not confiscate assets in an IRA or property designated as a homestead. However there are exceptions to this. IRA’s are protected in bankruptcy up to $1Mil. The Supreme Court has ruled that an inherited IRA IS NOT exempt, reasoning that the owner could revoke the IRA at anytime and take the assets, much like a living or revocable trust.
The most startling notion is that IRA’s themselves can be sued as a defendant like anyone else, or any entity. After an exhaustive search, only one obscure website mentions this. Even the IRA guru, Ed Slott, CPA does not mention it on his website – anywhere. The attorneys I queried were not sure.
Today more people are choose non traditional investments for their IRA like real estate, gold, even businesses. There are some restrictions, but IRA money can be invested in almost anything, even live animals. The problem arises when the business activity of the IRA creates a liability. For example a rental property can be owned by a self directed IRA. Companies advertise “checkbook IRA’s” for this purpose. If the tenant of the rent house injures him or herself or a plumber or neighbor is injured, who do they sue? The owner. If the owner is an IRA then potentially all the assets in that IRA may be subject to confiscation. What’s worse, if the judgment is greater than the IRA’s assets and liability insurance is not enough to cover the judgment, the owner of the IRA may find themselves personally liable. This is a significant problem. There are solutions but they are complex.
Another misconception is that if you name a trust as a beneficiary of an IRA, the IRA will become immediately taxable. This is true normally. Enter the IRA trust. Few attorneys even know they exist, but the IRS issued a private letter ruling stating that under a specific set of requirements, the trust may maintain the IRA as a tax deferred vehicle. For more information contact David Disraeli at 512-464-1110. Or visit www.pcfo.net