Q: I have an inherited IRA from my mother, who passed away
several years ago. I also have credit card debt that I cannot pay due to being
unemployed. I use the IRA for total support. Can the credit card company invade
my IRA if they get a judgment against me? -- AB New York City
A: In some states the answer is no; in others it's yes. But the answer for New York residents is still unclear, says Seymour Goldberg, a Melville New York estate lawyer.
The extent to which IRAs are protected from creditors depends on state law.
There are nine states that specifically shield inherited IRAs from creditors.
In several other states, however, courts have
held that inherited IRAs don’t qualify for protection from the beneficiary’s
creditors. The question hasn't yet
been argued in a
New York law protects an IRA from its
owner's creditors, but it says nothing about inherited IRAs.
New York law protects an IRA from its owner's creditors, but it says nothing about inherited IRAs.
There's a difference.
It’s natural for you to refer to this inherited IRA as
yours. But technically, it isn’t yours. It’s still your late mother’s IRA. You
are merely the beneficiary, says Ed Slott, a Rockville Centre NY tax accountant
and IRA expert.
One difference, for example, is that if it were your own IRA, you could name a beneficiary. Since it's an inherited IRA, you cannot.
When you inherit a spouse’s IRA, you can make it your own
by transferring it into a new IRA in your own name.
But every other beneficiary must keep an inherited IRA in the original owner's name to retain its tax-deferred status. If Fred Smith inherited his mother Mary Smith's IRA when she died on January 1, 2006, the account should be titled: `Mary Smith IRA (deceased 1/1/06) for the benefit of Fred Smith’.