Deciding Between a Spendthrift Trust Or An Inherited IRA In Oklahoma Bankruptcy

An Inherited IRA In Oklahoma Bankruptcy may be at risk if you file a chapter 7 bankruptcy. When you file a bankruptcy in Oklahoma certain assets are considered exempt from creditors and the court. If you have certain retirement accounts or Trusts they may be exempt assets in the event that you file a bankruptcy. Although your personal IRA and retirement accounts are exempt in bankruptcy this may not be the case for those that inherit the accounts when you pass away. There are a few popular methods of asset protection that might serve as a solution to your concerns. What those assets are and how and when they’re acquired is important. This article discusses two of those options: inherited IRAs and spendthrift trusts.

Spendthrift Trusts In A Bankruptcy

A spendthrift trust is an irrevocable trust in which the beneficiary generally cannot directly access the trust funds but instead may only receive funds at the discretion of a trustee. In Oklahoma, spendthrift trusts usually do not become part of a bankruptcy estate. Essentially, this means that an individual who is the beneficiary of a spendthrift trust can keep those funds safe from creditors when filing for bankruptcy.

There are, however, exceptions to this rule. First, if some of the assets exist in another state, different laws might apply. Additionally, if a beneficiary can access the trust funds upon request, then that property will likely be included in the bankruptcy estate.

Additionally, suppose the trust grantor (the person who makes the trust for the benefit of the beneficiary) includes a clause that allows the beneficiary an outright distribution of the assets in the trust, and the terms of that clause come to fruition. In that case, the assets may become part of the bankruptcy estate. For instance, if the grantor’s trust states that the beneficiary gets an outright distribution of the trust assets upon the grantor’s death, and the grantor dies within 180 days of the beneficiary’s bankruptcy filing, then those assets might become part of the bankruptcy estate.

In the case of a Chapter 13 bankruptcy, the event may lead to those assets becoming part of the estate as long as it occurs within the Chapter 13 plan. Notably, a Chapter 13 plan is typically in effect for three-to-five years.

Determining the treatment of a spendthrift trust in an Oklahoma bankruptcy case is a complex matter. Individuals concerned with this issue should discuss their case with an experienced Oklahoma bankruptcy lawyer.

Inherited IRAs in Oklahoma Bankruptcy

IRAs typically enjoy protection from creditors in bankruptcy cases – but this protection may only apply to the original holder of the IRA in Oklahoma. As an example, an original holder of an IRA account passes funds to their beneficiary at death. When it comes to the inherited IRA account, the bankruptcy protections for the original holder may no longer apply. If this happens, the IRA funds could become a part of the bankruptcy estate, and therefore, creditors may have access to that money. Oklahoma law does not provide creditor protection to inherited IRA holders when they are required to take distributions within five years of the original IRA holder’s death.

Bankruptcy Lawyers Near You

An inherited IRA In Oklahoma bankruptcy is at risk in bankruptcy. The technical differences between retirement accounts, trusts, and other funds can make a significant difference in the event of bankruptcy. Because of this, if you have questions regarding creating an estate plan that will protect beneficiaries, or if you are considering filing for bankruptcy and concerned about your assets, speak to an experienced lawyer for guidance and direction. For more information on asset protection strategies and bankruptcy, reach out to Kania Law Office by calling (918) 743-2233 or by contacting us online.