During a recent appearance on KHTS AM-1220’s “The Senior Hour,” Santa Clarita elder law attorney Randall Kaiden of Kaiden Elder Law Group, PC weighed in on the topic of Retirement Trusts and the Clark vs. Rameker decision, which he noted many people don’t know much about.

“Retirement trusts are one of my favorite instruments, and they’ve been around for a long time but almost nobody’s heard of them,” Mr. Kaiden said. “It’s very rare that you find a practitioner that actually creates them.”

In the past, Mr. Kaiden would generally set up retirement trusts in one specific situation: That is, when creating an estate plan for a blended family – meaning both “new” spouses have children from a prior relationship.

Related: Kaiden Elder Law Group: ‘Your Life, Your Legacy, Your Way’

A common fear in these scenarios is that a husband/wife who passes away, might leave a retirement account to his/her surviving spouse for their well-being while alive. But at the same time, once both spouses are gone, the original retirement account owner wants the remainder of that retirement account to ultimately go to their own kids. Instead however, the surviving spouse oftentimes, names their own kids as beneficiaries of that retirement plan, for after both spouses are gone. So the original account holder’s children get cut out of that part of their inheritance.

“In this context, in a second-marriage situation, the law states that the surviving spouse, once they roll over that retirement account, they can go ahead and name their own beneficiaries,” Mr. Kaiden explained.

Prior to a defining court case in 2014, the solution to this particular scenario was creating a Retirement Trust to solidify that funds from that account would be available to the surviving spouse during his or her lifetime, but after their death, the remainder of the retirement account would go to the original account holder’s children and/or grandchildren.

What made Retirement Trusts even more relevant however, was a recent court case called Clark vs. Rameker, where the US Supreme Court ruled that there is no asset protection on inherited retirements accounts – because inherited retirement accounts are not what Congress intended to protect when allowing the beneficial tax-deferred treatment for people who put money into their retirement accounts in the first place.

“This changed the landscape for everything and everyone,” Mr. Kaiden said, going on to explain the background of the case.

A woman named Heidi Clark had inherited around $1 million in an IRA from her mother around the year 2000 when Clark was approximately 40 years old. Clark and her husband spent the next 10 years getting into the real estate market, and ultimately wound up filing for bankruptcy, believing that the $1 million still remaining in their IRA would be protected (because under federal ERISA laws and state creditor protection laws, both federal and state governments provide that IRAs are protected assets).

“Their bankruptcy attorney had informed them, don’t worry, you still have this IRA that has a million dollars in it, so you’re going to be fine,” Mr. Kaiden said.

Prior to their case being heard at bankruptcy court however, Clark withdrew money from the IRA — despite the fact that she wasn’t retired — and used it to vacation in Hawaii, going on to post pictures on social media afterward.

“The creditors were very smart in this situation,” Mr. Kaiden said. “When they went into bankruptcy court (they) had pulled down those pictures and said to the bankruptcy judge, “‘Your Honor, why should she be able to shelter this IRA when she’s just taking the money out and going on vacation with it? … If she can get those monies, we should be able to tap into those funds.’”

The judge agreed, and ultimately ruled that the creditors had permission to access the IRA. Though Clark appealed the decision and it was even brought before the Supreme Court, the same rulings were reached.

“This kind of sent the bankruptcy world into a tailspin,” Mr. Kaiden said. “The Supreme Court said, ‘Well, guess what? It’s not a retirement account in the hands of a beneficiary.’ So that was like, whoa — wait a second. Now what are we going to do?”

As a result of this decision, an adult child’s inherited IRA account can be accessed by creditors in a variety of instances, such as: they get into a car crash and are sued for millions of dollars; make a bad business deal; go into foreclosure; have a medical issue that results in high bills; or even get divorced.

“If you think about it, who’s the No. 1 creditor out there?” Mr. Kaiden asked. “The No. 1 creditor out there is your future ex-spouse. I hate to put it like that, but the fact is that over 50 percent of marriages in California wind up in divorce.”

Ultimately, Mr. Kaiden pointed out, “All of these retirement plans are fair game for the creditors and predators to tap into if there isn’t some kind of safeguard available.”

As a Santa Clarita elder law attorney, Mr. Kaiden is able to assess each individual client’s specific circumstances and wishes for their IRAs, and can safeguard these accounts following the Clark vs. Rameker ruling, by setting up a Retirement Trust.

To learn more about Retirement Trusts and how to safeguard your accounts against creditors and predators, click here to listen to the full podcast, or contact Kaiden Elder Law Group by visiting their website or calling (661) 247-8433.

Randall Kaiden, J.D., LL.M.T., of Kaiden Elder Law Group is a Santa Clarita elder law attorney whose services cover estate planning, elder care law and the post-death administration of estates. The practice narrowed its focus to these three areas long ago in order to provide clients with exceptional services. A few things that set Kaiden apart from other Santa Clarita elder lawyers include his world-class legal services and compassion for helping seniors and their families. Kaiden is also a Santa Clarita VA aid and attendance attorney, as well as a Santa Clarita Medicaid attorney (medi-cal).

Randall Kaiden, J.D., LL.M.T.

Kaiden Elder Law Group, PC

27240 Turnberry Lane, Suite 200

Valencia, CA 91355

(661) 247-8433