Estate Planning Tip: Creditors protection for IRAs & Beneficiaries

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Creditors Protection for IRAs & Beneficiaries

Secured creditors enjoy the right to repayment of money prior to that of the unsecured creditor. They have a preferential payment over that of the unsecured creditors. Creditor’s rights deal not only with the rights of creditors against the debtor, but also with the rights of creditors against one another.

In the United States, a general assignment or an assignment for the benefit of creditors is simply a contract whereby the insolvent entity (“Assignor”) transfers legal and equitable title, as well as custody and control of its property, to a third party (“Assignee”) in trust, to apply the proceeds of sale to the …


This is simply the Individual Retirement Account, seemed simple, a structured way to save for your golden years while deferring taxes on your growing nest egg. This has become one of the most complex areas of estate planning.

Creditors, though, are not regarded as the members of a company, yet the role they play in maintaining a company cannot be denied. They are the sole functionaries of the company. They provide credit to the company for running its business, as without finance a company holds no position to carry on its business for which it came into existence.

By virtue of lending money by the creditors to the company, the company becomes debtor to the creditor and hence is under an obligation to take proper care of the interest of the creditors. Previously, there were no such enactments that provide relief to the creditors whose money is being involved in a company that fails.

However, many a times it has been seen that the company after taking money from the creditors, vanished away without returning the due money to the creditor. Such activities render loss to the creditor. In order to curb such activities as well as to protect the rights of the creditors, there are many legislations that have been enacted by the Government.

This can take careful planning. The good news is that even if you do not have a will or other estate documents, you can still control who receives your retirement assets upon your death.

The reason this only applies to non-spouse beneficiaries is because a spouse is able to roll over inherited IRA assets into their own account.  When this type of transfer occurs, the assets are once again protected.  A non-spouse beneficiary, however, cannot comingle inherited IRA assets with their own retirement assets.

Types of Creditor Protection for IRAs & Beneficiaries  

 Debtor control:

This refers to restrictions imposed on the activities of firms while they are going concerns, with the aim of reducing the risk of default. It focuses on transactions and operations by the shareholders and directors which may render the company vulnerable to failure and may deprive creditors of access to all or part of the company’s assets. It also takes into account remedies potentially available to creditors.

Included in the coding are provisions relating to the amount of minimum capital required to start a firm, restrictions on the payment of dividends defined by reference to the firm’s capital, the rights of courts to pierce the corporate veil to protect creditors, directors’ duties to take into account the interests of creditors, which can be particularly important for the protection of unsecured creditors and public enforcement of directors’ liabilities in the event of insolvency through, among other things, disqualification of directors for wrongful trading.

Finally, this sub-category includes provisions which are intended to protect the collective nature of liquidation proceedings whose goal is to achieve equal treatment of similarly situated creditors and to minimize the costs of insolvency proceedings.

Credit contracts:

This deals with the existence, feasibility and enforcement of ‘self-help’ mechanisms which creditors use to protect their interests. They include laws which protect the ability to take various forms of security or collateral.

The variables covered include those relating to mortgages, floating charges, financial collateral and retention of title clauses; the enforcement of those interests through the seizure and sale of assets; the appointment of receivers without a court order and insolvency set-off clauses which entrench secured creditors’ interests.

How the law recognizes and ranks such claims is at the core of its role in replacing ‘the free-for-all attendant upon the pursuit of individual claims by different creditors’ with a regime in which creditors’ rights and remedies are coordinated and a wasteful ‘race to collect’ avoided. The rise of new and complex financial instruments available on the market and the contested status of proprietary claims in an increasingly globalized legal environment have been reshaping this aspect of insolvency law in the period of our study.

Insolvency procedures:

This concerns the procedures governing corporate reorganizations and liquidations. It deals with:

  • The rules relating to the triggering of insolvency (or ‘corporate bankruptcy’) proceedings by shareholders and directors;
  • Whether creditors can file for insolvency proceedings on a balance-sheet basis, which may make the firm more vulnerable to being broken-up;
  • Whether a single creditor can initiate liquidation proceedings;
  • The availability to the firm of a stay or moratorium in liquidation and rehabilitation proceedings, deflecting creditors’ claims;
  • Whether directors can retain control during rehabilitation proceedings; whether secured creditors alone, unsecured creditors, shareholders or courts have the power to appoint a bankruptcy trustee or administrator;
  • Rules on voting over the firm’s exit from bankruptcy and priorities between different creditor groups in liquidation and rehabilitation proceedings.

Get professional assistance from an estate planning attorney NYC

As there are legal requirement binding the validity of each document, it is very essential you get expert legal help to prevent costly mistakes. And to ensure your document complies with New York state laws and that your POA is the type befitting your situation, call our estate planning attorneys NYC today for expert assistance.

DISCLAIMER: The information provided in this blog is for informational purposes only and should not be considered legal advice. The content of this blog may not reflect the most current legal developments. No attorney-client relationship is formed by reading this blog or contacting Morgan Legal Group.

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