Asset Protection for Florida IRA Accounts

Florida asset protection law was in flux for a while with respect to inherited IRA accounts.  A number of Florida courts had decided that an IRA inherited by anyone other than a spouse constituted inheritance rather than retirement savings.  The difference between those classifications is crucial.  General inheritance is not protected from creditors as an exempt asset class.  Retirement accounts, however, are exempt assets that cannot be reached by creditors.  Exempt status is clearly preferable from an asset protection standpoint.

New Florida Asset Protection Law

The Florida legislature is on a role.  Not only have they enacted a new law that partially approves the decision in Olmstead while creating absolute charging order protection for other types of limited liability companies, but they have now also addressed the IRA issue described above.

Florida Statutes section 222.21 has been amended and now designated inherited IRA accounts as exempt property.  The effect of this is profound, especially since the new law is retroactive.  That means that even if an IRA was inherited prior to the this new law becoming effective, the retirement account is now protected as exempt property.

Here’s an example of how this works.  If Kermit is a judgment debtor–if he owes lots of money to creditors–and inherits and IRA, the creditors will not be able to reach the IRA assets.  They are exempt, off limits to satisfy debts.

Consider Moving Your IRA to Florida

The new asset protection law applies to all IRAs inherited by residents of the State of Florida, regardless of where the deceased owner of the IRA lived.  As a measure of added caution, it would be wise to move any such accounts into a Florida IRA account, because the laws differ from state to state on this issue.

Taken together with the new law that addresses the Olmstead decision, it appears that Florida is becoming friendlier to the idea of asset protection.  There’s still a long way to go, and we’re nowhere even close to considering any asset protection plan complete unless it involves an international asset protection trust, otherwise known as an offshore trust, that can be triggered to safely remove assets from the reach of U.S. courts.  That’s the only way to ensure bulletproof asset protection and an avoidance of the tricky rules regarding fraudulent conveyances.