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Ensure intended beneficiaries are financially responsible

Anyone who has been following this blog knows how important it is to update their estate planning documents on a regular basis. There is another step you need to take to ensure that your estate plan is set up exactly how you want it. That step is to check beneficiary designations on your financial accounts.

A recent ruling by the United States Supreme Court might interest Florida residents who have an individual retirement account. While it might not be necessary to change your intended beneficiaries on your IRAs, you should know what could happen to the money you squirreled away if the beneficiary has to file for bankruptcy.

The ruling says that IRAs that have been inherited aren't exempted property for the purpose of bankruptcy. This means that creditors can claim the money in the inherited IRA to satisfy debts, so your hard-earned money would go to creditors if the beneficiary has to file for bankruptcy.

The ruling makes sense after you read the explanation for it. An inherited IRA doesn't have to sit untouched until the beneficiary is of retirement age. Instead, it can be tapped into immediately. So, while it is still a retirement account, it isn't one that has the protections afforded to other IRAs that are still in the hands of the original account holder.

As you go through your estate planning documents, you should make sure you consider if this ruling can affect your IRA. Knowing how to handle these types of beneficiary designations is just as important as spelling out your wishes for all your assets when you are gone.

Source: The Wall Street Journal, "Supreme Court Allows Creditors to Tap Into Inherited IRA Money" Katy Stech, Jun. 12, 2014

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