Asset Protection Planning for Qualified Retirement Plans

Asset Protection Planning for Qualified Retirement Plans

Includes discussion of non©\qualified plans, IRAs, 403(b), 457, state pensions, Education IRAs

(Coverdell ESAs), 529 Plans, Health/Medical Savings Accounts (MSA/HSAs), Qualified and

Non©\Qualified Annuities, Long©\Term Care Insurance, Disability Insurance and Group,

Individual and Business©\Owned Life Insurance and Irrevocable Trusts and UTMA Accounts

inheriting such accounts

National Association of Estate Planning Councils

December 9, 2015

Robert Alexander Lecture Webinar Series

Author:

Edwin P. Morrow III, J.D., LL.M. (tax), MBA, CFP?, RFC?

Board Certified Specialist in Estate Planning, Probate & Trust

Through the Ohio State Bar Association

Director, Wealth Transfer Planning and Tax Strategies

Key Private Bank Family Wealth Advisory Services

(937) 285©\5343

Edwin_P_Morrow@

edwinmorrow@

? 2007©\2015 Edwin P. Morrow III

Table of Contents

While effort is made to ensure the material is accurate, this material is not intended as legal advice and

no one may rely on it as such. Permission to reprint, copy, scan and share in full without modifications

with fellow professionals is granted, but please contact author for updates if more than a year old, or for

permission for other use. Constructive criticism or other comments welcome.

Page

I.

II.

III.

IV.

V.

VI.

VII.

VIII.

IX.

X.

XI.

XII.

XIII.

XIV.

XV.

XVI.

XVII.

XVIII.

Importance of Asset Protection

State and Federal Protections Outside ERISA or Bankruptcy

a. Non©\ERISA Qualified Plans: SEP, SIMPLE IRAs, ¡°Deemed IRAs¡±

b. Traditional and Roth IRAs

c. Section 457, Section 403(b) plans

d. Life Insurance

e. Long©\Term Care, Accident/Disability Insurance

f. Non©\Qualified Annuities

g. Education IRAs (now Coverdell ESAs)

h. 529 Plans

i. Miscellaneous State and Federal Benefit Plans

j. Health Savings Accounts (HSAs), MSAs, FSAs, HRAs

k. Tenancy by the Entireties, Joint Tenancy Issues

l. Homestead

Federal ERISA Protection Outside Bankruptcy

Federal Bankruptcy Scheme of Creditor Protection

Non©\Qualified Deferred Comp ¨C Defying Easy Categorization

Breaking the Plan ¨C How Owners Can Lose Protection

a. Primer on Prohibited Transactions

Post©\Mortem ¨C Protections for a Decedent¡¯s Estate

Post©\Mortem ¨C Protections for Beneficiaries

a. State law protections for inherited accounts

b. ERISA protections for inherited accounts

c. Bankruptcy protections for beneficiaries

d. Analysis of Clark v. Rameker and its impact on inherited accounts

e. Potential impact of Clark v. Rameker on non©\inherited accounts

Dangers and Advantages of Inheriting Through Trusts

Piercing UTMA/UGMA and Other Third Party Created Trusts

Exceptions for Spouses, Ex©\Spouses and Dependents

Exceptions when the Federal Government (IRS) is Creditor

Fraudulent Transfer (UFTA, UVTA) and Other Exceptions

Disclaimer Issues ¨C Opportunities (and Dangers)

Medicaid/Government Benefit Issues

Liability for Advisors

Conflicts of Law ¨C Multistate Issues

Conclusions

3

5

6

9

12

13

17

18

21

22

22

23

24

25

28

36

42

44

45

59

64

84

87

93

96

103

104

105

106

107

110

Appendices

A.

Ohio exemptions ©\ R.C. ¡ì2329.66 (excerpt), ¡ì3911.10, ¡ì3923.19

B.

Bankruptcy exemptions/exclusions ©\ 11 U.S.C. ¡ì 522 & ¡ì541 excerpts

C.

Florida IRA exemption ©\ Fla Stat. ¡ì 222.21

D.

50 State Exemption Chart

113

116

122

? 2015 Edwin P. Morrow III ¨C National Association of Estate Planning Council December 9, 2015

Page 2

I. The Importance of Asset Protection as Part of Financial and Estate Planning

Asset Protection has become a ubiquitous buzz©\word in the legal and financial community. It

often means different things to different people. It may encompass anything from buying umbrella

liability insurance to funding offshore trusts. What is most likely to wipe out a client¡¯s entire net worth?

Identity theft? A Ponzi scheme or investment scam, investment losses, an economic recession or

depression, a lawsuit, divorce or long©\term health care expenses? ¡°Asset protection¡± may be construed

to address all of these scenarios, but this outline will cover risk from creditors (including ex©\spouses) as

opposed to risk from theft, fraud, bad investments, disaster, medical bills or excessive spending.

Prudent business practice and limited liability entity use (LP, LLP, LLC, Corporation, etc) is the

first (and cheapest) line of defense against many such risks. Similarly, good liability insurance and

umbrella insurance coverage is paramount. Does the client know the gaps when they don¡¯t have an

umbrella insurance policy for each residence ¨C covering liability from pets, the boat or the ATV? Even

with good insurance coverage, there is a palpable fear among many of frivolous lawsuits and rogue

juries. Damages might exceed coverage limits. Moreover, insurance policies often have large gaps in

coverage (e.g. intentional torts, ¡°gross¡± negligence, asbestos or mold claims, sexual harassment,

punitive damages, terrorism, to name a few). As many doctors in Ohio know all too well, malpractice

insurance companies can fail, too.

Just as we advise clients regarding legal ways to legitimately avoid income and estate taxes or

qualify for benefits, so we advise how to protect family assets from creditors. Ask your clients, ¡°What

level of asset protection do you want for yourself? For the inheritance you leave to your family?¡± Do

any clients answer ¡°none¡± or ¡°low¡±? Trusts that are mere beneficiary designation form or POD/TOD

substitutes are going out of style in favor of ¡°beneficiary©\controlled trusts¡±, ¡°inheritance trusts¡± and the

like.

This outline will discuss the sometimes substantial difference in legal treatment and protection

for various investment vehicles and retirement accounts, with some further discussion of important

issues to consider when trusts receive such assets. Beware of general observations like: ¡°retirement

plans, insurance, IRAs and annuities are protected assets¡± ¨C that may often be true, but Murphy¡¯s law

will make your client the exception to the general rules. The better part of this outline is pointing out

those exceptions.

? 2015 Edwin P. Morrow III ¨C National Association of Estate Planning Council December 9, 2015

Page 3

Overlapping Asset Protection

Bankruptcy 11 USC

¡ì¡ì 522, 541

(e.g. retirement plans,

IRAs, 529 plans)

ERISA (29 USC

1001 et seq

(e.g. 401k,

pensions)

Federal non-ERISA

law (e.g. social

security, 457)

State law

(e.g. Ohio R.C.

¡ì2329.66)

Irrevocable Trusts

as beneficiary

The World of Tax Qualified Account Protection

- Mind the Gap

? 2015 Edwin P. Morrow III ¨C National Association of Estate Planning Council December 9, 2015

Page 4

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