Creditor Protections for Inherited IRA Benefits and the Proposed Harmonization of Protections for Savings and Retirement Benefits Act

There is ambiguity whether New York law permits a judgment creditor to enforce its claim against the debtor’s interest in an inherited individual retirement account (IRA). In contrast, some states have enacted legislation that protect inherited IRAs from creditors of a beneficiary. The article discusses New York protections for a debtor’s savings and retirement Benefits and the only Court decisions considering whether a creditor may enforce a claim against the judgment debtor's interest in an inherited IRA. Those decisions are all recent and find that such claims are enforceable. Although, the article argues that such decisions are unconvincing, they must be considered carefully by debtors and creditors. Thus, estate planners often recommend naming a spendthrift trust as the IRA beneficiary in order to protect the individual beneficiaries from their creditors. The article describes a proposed Harmonization of Protections for Savings and Retirement Benefits Act that would increase the coherence, clarity and equity of New York debtor protections for savings and retirement benefits by applying the current widely accepted paradigm that all similar benefits receive similar protections. In particular, the same debtor protections would be made available to participants and beneficiaries of savings and retirement plans, including IRAs. The act would make clear that creditor protections do not require that an IRA participant be wealthy, well-advised and willing and able to interpose a spendthrift trust as an IRA beneficiary to obtain creditor protections for the participant’s desired beneficiary or beneficiaries