How does the U.S. Supreme Court’s recent decision in Clark v. Rameker affect inherited IRAs?

On June 12, 2014, in a unanimous decision, the Supreme Court made clear that an inherited IRA is not a protected retirement fund from bankruptcy proceedings.  In reaching its decision, the Court identified three characteristics which demonstrate that inherited IRAs are not established for the purpose of retirement: (1) inherited IRA holders may never invest additional money in the account; (2) inherited IRA holders are required to withdraw money from the account, regardless of age; and (3) inherited IRA holders may withdraw the entire balance of the account at any time, for any purpose, without penalty. Uncertainty remains as to how this decision will impact spousal IRAs.  However, it is now apparent that the designation of a non-spouse beneficiary on an IRA must be done with ‘eyes wide open’ as to any pending or potential bankruptcy.  In light of that, expect to see the use of retirement trusts increase to achieve protection from creditors.