When a person dies, their debts do not. Creditors may reach certain assets within a deceased person’s estate. Reachable assets include assets titled in the decedent’s name such as a house, as well as assets held in a revocable trust. A recent article discusses how an inherited IRA is different.
Inherited IRA accounts and retirement accounts are different in that, as long as the controlling documents have specified a pay-on-death beneficiary, they are not subject to probate. Because they pass outside of probate, creditors cannot reach them to satisfy their claims. The only claim that they are subject to is federal estate tax. However, this tax only applies to estates with a value above $5.25 million. Additionally, for those individuals who received benefits from Medi-Cal during their lifetime, assets from their retirement accounts and life insurance policies are exempt from Medi-Cal Estate Recovery claims as well.
Because assets from retirement accounts and insurance policies are not subject to creditor claims, heirs have no obligation to use such assets to pay off a creditor of the decedent. In so doing, the beneficiary would essentially be throwing away the money that the decedent left for the beneficiary.
If you have inherited an IRA account and need assistance in managing the account, contact an estate planning attorney.
