Individual, business, and online reputation management oh my! A term that is regularly spoken in the public relations and digital marketing fields, the heart of reputation management is the influencing and/or control of an individual’s or business’s reputation; online reputation management measures the impact of your digital footprint. But while all this talk is happening about these areas of reputation management, why are individuals not speaking with their advisor about one of their most important aspects to reputation management: the reputation management of their legacy.

While personal and professional reputation management is important, many of us can lose sight of applying that same reputation management to what we will leave behind: our legacy. Legacies often come in a monetary form and are left behind to family members as a way to provide financial security, or can even be used to make a large charitable contribution. And why shouldn’t your legacy’s reputation receive adequate attention? After all, you’re leaving behind a small piece of yourself aren’t you?

Reputation Management & Your Legacy’s Bottom Line

For marketing and public relations professionals, conversations with clients routinely center on how poor reputation management can damage a business’s bottom line. Poor reputation management in your financial life can negatively affect your legacy’s bottom line just the same.

Legacies are not only meant to leave something behind to those we love. They are meant to be a reflection of who we are, causing our desire to personally determine the future of our wealth and how that wealth is going to be distributed over generations to come center stage. To feed this desire, many people create wills, and keep the beneficiary information associated with their different assets up to date. However, transferring wealth from one generation to another is just one piece of a complex puzzle; the other pieces involve the need to protect your interests and your wealth. Up to date wills and beneficiary information may not fill in the missing pieces, leaving your legacy incomplete, your wishes failing to be upheld, and your wealth open to erosion.

A Game Changing Supreme Court Decision

A common asset on many people’s balance sheet, IRAs, just like any qualified retirement investment, are creditor protected. In the past, this has made them an ideal medium for wealth transfer and legacy protection. Unfortunately, the law has something new to say about Inherited IRAs.
In the summer of 2014, the case of Clark v. Rameker had made it all the way to the Supreme Court. Heidi Heffrom-Clark inherited an IRA with roughly $450,000 in it in 2000, and when she and her husband were forced to declare bankruptcy in 2010, Clark stated that the remaining $300,000 in the Inherited IRA was exempt from the bankruptcy estate, based on the common belief that since it was an IRA, it was creditor protected. In 2014, the Supreme Court disagreed. Their decision: Inherited IRAs are NOT creditor protected.

Setting a precedent for cases to come, the Supreme Court concluded that Inherited IRAs are fundamentally different from personally owned IRAs, they lack a retirement purpose, are subject to an entirely different set of rules concerning use and distribution of the funds, and that Inherited IRAs are no longer used for retirement purposes but are rather a liquid asset. The ruling was based on the Bankruptcy Code Sections 532(b)(3)(C) and (d)(12), which states that a creditor exempt asset depends on the conjunction of tax deferral and the assets’ status as “retirement funds;” in other words, just because an IRA provides tax benefits does not mean it is a creditor protected asset.

The Exception or The Rule?

Up until the 2014 ruling, there had been previous instances where an Inherited IRA’s status as a creditor protected asset had been upheld. However, these instances typically occurred in states with specific laws protecting them; many times, this is the exception, not the rule.

There are only a handful of states that have laws in place to protect Inherited IRAs. Now, did Clark’s parent know that their state did not have such laws in place? Probably not. And who would know that, aside from legal professionals? If your state says “IRAs are protected,” this can also leave much open to interpretation; rather than crossing your fingers and hoping the plan you have for your legacy works out, or spending hours with legal counsel examining state laws and loop holes that can arise, take to heart the fact that leaving your legacy’s reputation to chance can put everything you have worked to leave behind at risk.

Proactive Legacy Reputation Management

A proactive approach to managing your legacy’s reputation starts by implementing strategies capable of safeguarding your family’s success, by leaving nothing open to interpretation. Acting as a double-edge sword, a trust is one such strategy that provides security and compliance with your stated wishes.

Rather than naming individuals as the beneficiaries on your personal IRA, a proactive step in legacy reputation management would be implement a trust, and then naming the trust as the beneficiary. A trust of this nature is drafted with creditor protection features that allow the trust to hold the funds and allows the trustee to make distributions to the trust’s beneficiaries. Other benefits include minimizing capital gains and estate taxes, maintaining privacy through its ability to avoid probate, and retaining control of and preserving your wealth should you ever become incapacitated.

Your legacy is a piece of you, left behind to carry out your last wishes and to provide security to those you can no longer physically be there for. Poor legacy reputation management can leave everything that you’ve worked so hard to build open to unnecessary risk. We can help you take a proactive approach to managing your legacy’s reputation today.

Disclosure: The information addressed herein is not meant to be construed as tax or legal advice. Jarred Bunch Consulting does not offer tax, legal, or estate planning advice. You should consult with a legal or tax professional concerning your individual circumstances.

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