Exemption of IRAs from Creditors Means EXEMPT… or Does It?

Araguel v. Bryan illustrates the intersection of guardianship law, individual retirement accounts (“IRAs”) and payment of guardianship expenses from the incapacitated individual’s (the “ward”) IRA after the ward’s death. 

In October of 2019, Patrick and Leslie, children of Jane Araguel (“Jane”), petitioned the court to become Jane’s ETG. as Jane was unable to care for herself. The children were not appointed but a professional guardian was appointed as ETG.

Jane died in June of 2020. The ETG filed a motion to pay guardianship expenses, attorney expenses and other costs and expenses from Jane’s IRAs. The beneficiary designations of the IRAs listed Jane’s children as beneficiaries.

The ETG argued that, under guardianship law, the ETG could retain Jane’s property to pay the expenses and that the guardianship was not a “creditor” under the IRA exemption statute. The trial court agreed.

The children appealed. Florida law states that any interest of an IRA “owner, participant, or beneficiary in, a fund or account is exempt from all claims of creditors of the owner, beneficiary , or participant…” The appellate court determined that the term “claim of a  creditor” includes guardianship fees and costs and thus, because the statute exempts IRAs from claims of creditors, that such fees and costs could not be paid from the IRAs.

The ETG argued that “claim” as defined in the probate code does not include administration expenses and Florida law states that the probate definitions apply to guardianship provisions.Thus, because administration expenses are not “claims” under the probate code and that definition applies to guardianship proceedings, the administration expenses could be paid from the IRAs as those expenses were not a “claim of a creditor”. 

The appellate court determined that the probate code specifically addresses when definitions apply and the IRA exemption statute is not referenced in that statute. Thus, the definition of claim in the probate code does not apply to the IRA exemption statute and therefore claims can not attach to Jane’s IRAs. Further, even though guardianship law allows a guardian to retain funds in the guardian’s possession, there was no evidence that the IRAs were in the ETG’s possession or by a third party contract.

Interestingly, the dissent pointed out that guardianship law  provides that a guardian may retain funds a sufficient amount to pay the final costs of administration, regardless of the death of the ward…and the dissenting judge would affirm the trial court decision.

ADVICE: This author is not clear what would happen if the IRAs were the sole asset of the guardianship during the lifetime of a ward. The statute permits the guardian to pay its fees, expenses, etc out of the ward’s assets and presumably, while living, the guardian has control over the ward’s IRAs. However, if monies are distributed from an IRA, then severe income tax consequences could occur. Query… during lifetime would the exemption from claims and creditors override the guardianship request for expenses? Probably not. The beneficiaries of the IRAs would appear to have no standing as the ward (or his or her guardian) could change the beneficiaries prior to the ward’s death. It appears the safest route would be a court order to withdraw funds from the IRAs, disclose the tax consequences and such funds could be used for the benefit of the ward during his or her lifetime and pay the expenses of the ward for the ward’s benefit. 

WORD OF THE WEEK:  ETG is an emergency temporary guardian. An ETG is permitted to be appointed under Florida law when a person is in imminent danger that his or her physical or mental health or safety will be seriously impaired or such person’s property is in danger of being wasted, misappropriated, or lost unless immediate action is taken. The ETG can only act for 90 days and a hearing is required to appoint the ETG.

For example, assume Sue names Judy, her caregiver, as her durable power of attorney. Sue becomes incapacitated and Judy starts using the durable power of attorney to take monies from Sue’s bank accounts for Judy’s car, vacation ,etc. An ETG would be necessary to protect Sue’s assets.

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