Protecting Deferred Comp & Pensions


Many first responders have large IRA and Retirement Plan Accounts. Retirement plans account for approximately 34% of all household financial assets, while IRAs alone account for more than 10% of all household financial assets.

It is important for first responders to protect their IRA and retirement plan assets for their families, but most do not understand what can happen to those accounts after they die. And, unfortunately, much of the information plan owners and beneficiaries receive from family members, other lay sources, and, surprisingly, even some advisors is outdated or incorrect.

"Found" Money Is Extremely Slippery.

We have all heard of the result of studies of how fast the average beneficiary goes through life insurance proceeds. Spending "found" money simply does not carry the significance of spending one's own hard earned money. An IRA or other retirement account passing to an individual beneficiary is "found" money and just as slippery. Your beneficiaries can do whatever they like with an inherited IRA account, as long as they take the required minimum distributions. This means that you heirs can treat an inherited IRA or retirement account as a piggy bank to whatever degree they want.

Creditor Claims

Unfortunately, creditors also can get a crack at the funds, thanks to the Supreme Court's decision in Clark v. Rameker. Before that 2014 ruling, inherited IRAs were treated as protected assets in bankruptcy. Now they are fair game.

Divorce and Unintended Beneficiaries

Although an inherited IRA is not a marital asset, it is "on the table" in a divorce because it can be transferred as part of a divorce settlement, and unfortunately we know the divorce rate is more than Fifty (50%).

Additionally, the beneficiary of an inherited IRA will make his or her own beneficiary designation in case of their death before the account is depleted. Most first responders do not want their child's ex-spouse to get their IRA funds or a child's new spouse to inherit these funds because both carry the risk that the first responders grandchildren will be disinherited.

Loss of SSI/Medicaid

Any inheritances, including assets in an inherited IRA, are considered "resources" for determining SSI/Medicaid eligibility. At least temporary loss of SSI/Medicaid or other government benefits by a disabled beneficiary is hard to avoid if there is more than $2,000 in the inherited IRA.

Conduit Trust

If you have reservations about giving your heirs unfettered access to an inherited IRA or retirement account, a Conduit Trust will give you "PEACE OF MIND."

By not designating a Conduit Trust as the beneficiary of an Inherited IRA or by simply having the IRA pass outright, one may face serious setbacks.

First, if the intended beneficiary passes away and the new beneficiary is a minor, the parties will have to go to court for the appointment of a legal guardian. Thereafter, and following this potentially burdensome process, any distributions must be paid to a court appointed guardian.

Second, even providing the beneficiary is an adult, they may seek to liquidate the entire account, which will trigger a substantial tax and end any tax-deferred growth. All of these outcomes may very well contradict the original owner's final wishes.

Third, and equally problematic, the funds themselves are readily available to the beneficiary's creditors, which include a divorcing spouse. In light of the high divorce rate, this is a very real concern today.

In Summary

Naming a Conduit Trust as the Beneficiary of an IRA Affords:

In addition to maximizing the tax and asset protection objectives, using a trust in this context helps prevent the chance of unintentional beneficiaries inheriting the asset thereby keeping it in the family.


Naming a separate Conduit Trust as designated IRA or retirement plan beneficiary is preferable to naming beneficiaries outright. It ensures that the client's goals are carried out, including that the client's beneficiaries will use the IRA stretch out potential. It provides asset protection against predators, the beneficiaries' creditors and loss upon divorce. It can provide bloodline protection, preventing unintentional beneficiaries and disinheriting of descendants. It provides for beneficiaries who have or later develop special needs without jeopardizing their valuable government benefits.

Each client's situation is different. For IRA and Retirement Trust planning, individual, case-by-case analysis with input from our legal team is essential.