Estate Planning

In North Carolina standard IRAs are exempt from creditors' claims, under state law and federal bankruptcy law.  Also, qualified retirement plans, such as 401(k)s and 403(b)s, are protected under the federal ERISA law.

However, ERISA treats employer funded IRAs like SEP-IRAs and SIMPLE IRAs differently from qualified plans, and does not offer creditor protection for such IRAs.  In addition, since ERISA states that it trumps state law with regard to plans covered by ERISA, it is doubtful that the North Carolina statutory exemption for IRAs works to protect SEP and SIMPLE IRAs.

Also, it is questionable whether inherited IRAs are protected from creditors.  At least one federal bankruptcy court has ruled that inherited IRAs are not exempt in a bankruptcy proceeding.

Thus, if you have a SEP, SIMPLE, or inherited IRA, it may be at risk if you are ever sued.

So, what to do?

If you are no longer contributing to the SEP or SIMPLE, you may be able to roll it into a standard IRA so that it's fully protected (under NC law and up to $1 million in bankruptcy).

Another way is to move your IRA offshore to a jurisdiction like Nevis or the Cook Islands.  Your IRA can establish a limited liability company (LLC) in one of these jurisdictions, and then the custodian transfers your IRA funds to the foreign LLC in exchange for the foreign LLC's membership interest. Your IRA then owns the foreign LLC. Your IRA has no assets within the United States - it owns only the membership of the foreign LLC.

Your IRA would then be protected in the same manner as any LLC in that jurisdiction.  The creditor would have to initiate a lawsuit in the foreign jurisdiction, and in the event it prevailed, would have only a charging order remedy.  This remedy does not allow the creditor to invade the IRA to satisfy its claim, but only get its proportionate share in the event of a distribution from the LLC.