Baby boomers and bankruptcy — Supreme Court says inherited IRA not protectedBlog added by Lloyd Lofton on June 27, 2014
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Lloyd Lofton

Marietta, GA

Joined: August 30, 2011

A February 2010 Urban Institute report titled “Will Health Care Cost Bankrupt Aging Boomers?” finds that rising health care costs pose a significant threat to boomers’ retirement security. These include out-of-pocket expenses related to premiums, deductibles, copays and holes in Medicare for all adults age 65 and older.

Their finding highlights issues such as:
  • Median annual out-of-pocket costs between 2010 and 2040 for Americans age 65 and older will more than double, from $2,600 to about $6,200 with nearly 1 in 10 older American’s spending more than $14,000 per year on health care in 2040.

  • For adults age 65 and older real median sized-adjusted household income will increase more slowly, from $26,800 in 2010 to $34,600 in 2040.

  • Older Americans' out-of-pocket health care spending will consume 60 percent of their real household incomes between 2010 and 2040.
A study done by the American Bankruptcy Institute’s ABI Journal found that baby boomers were disproportionately represented in bankruptcy proceedings. The steepest increase in Chapter 7 filings occurred among people older than 55.

Another concern that may affect surviving children — who themselves are approaching retirement and their parents planning in their retirement is a new, unanimous Supreme Court ruling, reported June 12, 2014 — is that inherited individual retirement accounts are not shielded from creditors in bankruptcy proceedings, a decision that is slated to clear up confusion about the status of unspent IRAs that parents leave to their children.

This decision comes from a Wisconsin case where a couple declared bankruptcy yet wanted to prevent creditors from going after $300,000 in an IRA that was inherited from a passing parent. Previously, bankruptcy law typically protected retirement assets from the reach of creditors.

See also: It’s your inherited IRA, not creditors’

This may present an opportunity for advisors to bring adult children into the fact-finding conversation when doing retirement and estate planning with clients. It brings to the table the real life events affecting families, providing opportunity to offer a wider protection for clients and their families while building in future wallet share of multi-generation households surrounding lifestyle issues that are becoming more common than uncommon.

So rather than looking at the glass as half-full or half-empty, maybe this will allow “ice” to be added to the glass, showing advisors insight and professionalism in protecting clients best interest.
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