Delaware IRA
The Wall Street Journal published an article today, October 13, 2004, about a "new type of individual retirement account" referred to as a "Delaware IRA." The Delaware IRA is reported to be a creation of two Wilmington, Del trust companies. The IRA s operate financial like regular IRAs but the IRA documents treat them as trusts including "spendthrift provisions" which are used in trust documents to protection the interest of trust beneficiaries from their creditors. The article points out that these Delaware IRAs have not been tested in any court, and it states that the U.S. Supreme Court will during the current term take up the issue of whether IRAs are generally protected under federal bankruptcy law.
All of this is interesting, but it is not relevant for Florida residents. In Florida, IRAs are protected from creditors judgments and are exempt in bankruptcy filings under specific Florida statutes. A few other states, such as Texas and New York, have similar blanket protection of IRAs. Therefore, if a financial professional approaches you about creating a Delaware IRA because of its supposed superior asset protection I recommend that you decline the offer if you are a resident of Florida. The Delaware IRA could only increase the exposure of your current IRA to future creditor problems.
Do inherited IRAs offer protection from divorce to the beneficiary? I.E. James Smith, IRA, FBO John Smith(son). Once James has passed, is that IRA protected from John's spouse in the event of divorce?