IRAs can be helpful tools for Texas residents who are planning for life after retirement. However, people who use their IRA carefully may leave some funds in such an account at the time of their death. There are various options in leaving an IRA to one's heirs, but an inherited asset could be vulnerable in case of a beneficiary's divorce or in other situations that cause outside parties to have an interest in an heir's inheritance.
Inherited assets are typically viewed as separate property unless they are used for mutual needs during a marriage. An inherited retirement plan is not viewed as a retirement asset for an heir in cases involving possible bankruptcy. However, a divorce may allow a spouse to tap into an inherited retirement account because retirement assets are often affected by community property laws. Divorcing spouses often seek those retirement assets with the greatest growth potential and lowest tax liabilities, which makes a tax-free IRA an asset of great interest in a settlement.
A retirement trust could be an important tool for protecting an inherited retirement asset, offering the ability to designate specific beneficiaries and protecting the funds from possible divorce action. However, it is important to discuss such issues with an experienced lawyer to ensure that such a trust is structured to comply with IRS rules and regulations. A retirement trust is not designed to hold any other types of assets and must be drafted precisely. It is also crucial for the holder of a retirement account to keep beneficiary information current and to keep a copy of the most recent changes.
In a high asset divorce, it may be challenging for some parties to recognize the value of one asset in comparison to another. A lawyer may help in evaluating one's retirement assets to determine the long-term value in comparison to the current value. This information may be helpful as settlement negotiations ensue.