If you’re naming a trust as your IRA beneficiary, wording can make a big difference. In some states, for example, if the trust doesn’t permit debts to be paid, the trust beneficiary will enjoy creditor protection.
The same probably will be true if the trust is silent on this issue. A trustee who pays debts from an IRA when not specifically instructed to do so may be charged with a breach of fiduciary liability.
Say you name a trust as IRA beneficiary and your daughter as beneficiary of the trust. After the trust inherits your IRA, it may be sheltered from your daughter’s creditors.
However, if the trust says that debts “shall be paid,” you might destroy the creditor-proof status of the IRA. In that case, your daughter’s creditors might be able to attach the inherited IRA.
