The Robertson Case: A Beneficiary by Any Other Name Is Still a Beneficiary

In a recent court case called Robertson v. Deeb, the court decided that an inherited individual retirement account (IRA) does not have the same protection from creditors as originally thought. This decision could affect many people in Florida who are beneficiaries of IRAs. It’s important to know that state laws can impact retirement accounts, so it’s important to understand the laws in your state. Qualified plans and IRAs can’t be transferred during someone’s lifetime without losing their special tax status. Many people want to pass these assets to their kids or grandkids to keep the tax advantages. Under federal law, if someone inherits an IRA, they can set up a special type of IRA called an “inherited IRA” to keep these tax benefits. The money in an inherited IRA has special protections from creditors. There’s a case in Florida where someone tried to garnish money from an inherited IRA, and it’s causing questions about whether these protections still apply. Robertson inherited his father’s IRA and had two options for taking out the money. He chose to transfer the money into an “inherited IRA,” but later found out that it could be taken by creditors. He argued that the law protected his inherited IRA, but the court disagreed. The court decided that the inherited IRA was not protected from creditors because it was considered a different account than the original IRA. They said that the tax-exempt status of the inherited IRA changed once the original owner passed away. They also said that beneficiaries of inherited IRAs have to take out money, even though the original owner also has to take out money at a certain age. The court also made a weird distinction between leaving the IRA in the original owner’s name and taking the money out over five years, and putting the original IRA into an “inherited IRA.” But there’s no basis for that distinction in the law. The court looked at cases from other states and used an Oklahoma bankruptcy case as a basis for their decision. In the Oklahoma case, they denied an exemption for someone who inherited an IRA because of a specific state law. The law said that assets can only be exempt if the contributions were not taxed when they were made. The court said that the purpose of exempting IRAs is to protect money saved for retirement, and that purpose wouldn’t be served by letting the person keep their inherited IRA. However, a recent case in Minnesota had a similar situation and the court allowed the person to keep their inherited IRA. The court in that case cited IRS rules that say an inherited IRA is still tax-deferred, and the trustee didn’t argue that the inherited IRA wasn’t following the rules. In 1987, Florida passed a law to protect the money in retirement accounts from creditors. The law was later updated a few times, but the main goal was to make sure that money in qualified retirement plans couldn’t be taken by creditors. This included plans with only one owner. The law also aimed to protect the money for anyone who inherited a retirement account. The law didn’t have any restrictions, so it applied to all types of retirement plans, including individual retirement accounts (IRAs). In 2005, a new law called the Bankruptcy Abuse Prevention and Consumer Protection Act was passed. This law changed the rules for protecting money and assets in Florida. The law now allows people to move their retirement savings between different accounts without losing protection from creditors. The law also clarifies that the person who owns an IRA is not the same as the person who benefits from it. The attorney argues that Robertson should be protected as a beneficiary of the account, just like the actual contributors. The statute is clear and the courts must follow its plain meaning. In a similar case, the Supreme Court looked at other laws to understand the meaning of a term, and here, other statutes define a beneficiary as someone with a present or future beneficial interest in a trust. So Robertson should be protected as a beneficiary under the law. The law in Florida says that inherited IRAs are protected from the beneficiary’s creditors. Some people may argue that the legislature didn’t intend for this protection, but there’s no evidence of that. If inherited IRAs weren’t protected, people might try to get around the law by buying different kinds of annuities. This could lead to abuse and lawsuits. The law says that money in an inherited IRA can’t be taken by creditors, even though it was inherited and not originally earned by the person who owns it. This means that if someone owes money, their inherited IRA is still protected. If you inherit an IRA from someone, you have the same tax benefits as the original owner. A recent court case said that creditors could take money from an inherited IRA, but there are ways to protect it. One way is to create a trust for the person who will inherit the IRA instead of giving it to them directly. Another option is to buy an annuity, which can also provide protection. The rules about protecting retirement accounts from creditors are really important because there’s a lot of money at stake. Creditors are trying harder to get their hands on this money, so it’s crucial that the laws are clear. The case of Robertson is the current law, but it might not be the final decision. It’s important to make sure that the rules protect the interests of people who have these accounts. There have been changes to the law over the years to try to make sure retirement accounts are protected. Linda Suzzanne Griffin and Kristen M. Lynch are both experienced attorneys who specialize in estate planning and trusts. They have certifications and are involved in various legal organizations related to their field. This article is from a section of The Florida Bar that focuses on real property, probate, and trust law.

Source: https://www.floridabar.org/the-florida-bar-journal/the-robertson-case-a-beneficiary-by-any-other-name-is-still-a-beneficiary/