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Is an inherited IRA exempt just like a regular IRA?

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  • Is an inherited IRA exempt just like a regular IRA?

    Not that I'm considering BK again (would need to wait another 6 years!), but I was just curious.

  • #2
    From what I have seen and read, they remain "retirement funds" so long as they remain in the IRA account. If you take the distribution, they are no longer retirement funds, subject to taxation, and would be property of the estate. (Noting that taxation has nothing to do with whether property is exempt in bankruptcy.)

    We had a case here in Florida, In Re Mathusa, 10-bk-13336-KSJ, Florida Middle District which touched on this. It is consistent with other courts. The key is that the funds stay "retirement funds"! (You could transfer the funds to your own IRA account or leave them in the original account based on every ruling I've ever read on this topic.)

    As in all cases, you should consult a bankruptcy or asset planning attorney before touching ay inherited IRA if you intend to preserve the exemption.
    Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
    Status: (Auto) Discharged and Closed! 5/10
    Visit My BKForum Blog: justbroke's Blog


    I am not an attorney. Any advice provided is not legal advice.

    Comment


    • #3
      Depends upon your jurisdiction but the majority say it is exempt. . .

      In re Hamlin -this is published but I don't have the cite handy - B.A.P. 9th Cir., Feb., 2012

      Appellant, chapter 7 trustee Brian Mullen ("Trustee"), appeals a bankruptcy court order allowing debtors' claimed exemption under § 522(b)(3)(C) for an individual retirement account ("IRA") Brittany Hamlin ("Ms. Hamlin") (collectively "Debtors"), inherited from her grandmother prepetition. In this issue of first impression before a court of appeals within the Ninth Circuit, we hold that a debtor can exempt funds in an IRA inherited from a non-spouse under § 522(b)(3)(C), and we AFFIRM.


      In re Tabor, 433 B.R. 469 (Bankr. M.D. Pa., 2010)

      Merri Simpson Tabor, also known as Jamie Simpson Tabor, (“Debtor”) filed a claim of exemption in an Individual Retirement Account (“IRA”) that she inherited from her mother. The Chapter 7 trustee, Charles A. Bierbach, Esquire (the “Trustee”), objected, alleging that an inherited IRA may not be exempted under either Pennsylvania law or the Bankruptcy Code. The parties have stipulated to the relevant facts, and the only issue is whether Debtor's inherited IRA may be claimed as exempt under 11 U.S.C. § 522(b)(3). For the reasons set forth below, the Trustee's Objection will be overruled.

      In re Nessa, 426 B.R. 312 (B.A.P. 8th Cir., 2010)

      Gene W. Doeling, Chapter 7 trustee (the "Trustee") for the bankruptcy estate of Nancy A. Nessa (the "Debtor") appeals from an Order Overruling Objection to Exemption. The bankruptcy court overruled the Trustee's objection to the Debtor's claim of an exemption of her inherited IRA account under section 522(d)(12) of the Title 11 of the United States Code (the "Bankruptcy Code"). We have jurisdiction over this appeal from the final order of the bankruptcy court. See 28 U.S.C. § 158(b). For the reasons set forth below, we affirm.

      BUT SEE

      In re Chilton, 426 B.R. 612, 2010 WL 817331 (Bankr. E.D. Tex., 2010)

      Although there is no dispute that Shirley Heil's IRA was exempt from taxation, her death and the distribution of the funds from her IRA to her daughter transformed the nature of the IRA. Her daughter, Janice, placed the distributed funds into a new account created in her deceased mother's name from which she, as the beneficiary of the new account, must take distributions prior to retirement. Similar to the treatment of inherited IRAs under the state exemption statutes discussed in Sims and Jarboe, an inherited IRA is not equivalent to an IRA for purposes of determining whether the account contains "retirement funds" that may be exempted from the estate under § 522(d)(12). Even assuming, arguendo, that the inherited IRA contains "retirement funds," the account established by Janice Chilton to receive the distribution of funds from Shirley Heil's IRA is not a traditional IRA exempt from taxation under § 408(e)(1). For these and all of the foregoing reasons, the Court concludes that the Chapter 13 trustee has rebutted the prima facie effect of the debtors' claimed exemption. The IRA inherited by Janice Chilton from her mother is a non-exempt asset of the debtors' bankruptcy estate.

      In re Klipsch, 435 B.R. 586 (Bankr. S.D. Ind., 2010)

      This matter comes before the Court on Trustee's Objection to Claim of Exemptions (“Objection”) filed on December 5, 2009. Specifically, Trustee objected to Debtor claiming an exemption in an inherited IRA. The Court held an evidentiary hearing on the matter on April 22, 2010. The matter was fully briefed on May 22, 2010. Having considered the foregoing, and for the reasons described below, the Court finds that Trustee's Objection should be and hereby is SUSTAINED.

      ________________

      You need to find out what the prevailing view is in your district. Ask a local bk attny.

      Des.

      Comment


      • #4
        Des, from all the cases I've read in the 11th, and the 5th, In re Chilton is different. In Chilton, the funds were "distributed" thus destroying the affect of the IRA exemption. I can see the problem with that case.

        Still, you are right that a debtor really needs to get competent legal representation to look at this. Even with a good bankruptcy or asset protection attorney, we can see that some Courts have made the leap that funds removed from the original IRA to a new "account" may not protected.
        Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
        Status: (Auto) Discharged and Closed! 5/10
        Visit My BKForum Blog: justbroke's Blog


        I am not an attorney. Any advice provided is not legal advice.

        Comment


        • #5
          Unless I'm not reading it correctly, Chilton was reversed by the District Court and the 5th Circuit Court of Appeals upheld the District Court's ruling saying inherited IRAs are exempt, even after transfer to the beneficiary.

          Here's the Appellate Court's Opinion: http://volo.abi.org/chilton-v-moser-...hilton/opinion
          LadyInTheRed is in the black!
          Filed Chap 13 April 2010. Discharged May 2015.
          $143,000 in debt discharged for $36,500, including attorneys fees. Money well spent!

          Comment


          • #6
            Originally posted by LadyInTheRed View Post
            Unless I'm not reading it correctly, Chilton was reversed by the District Court and the 5th Circuit Court of Appeals upheld the District Court's ruling saying inherited IRAs are exempt, even after transfer to the beneficiary.

            Here's the Appellate Court's Opinion: http://volo.abi.org/chilton-v-moser-...hilton/opinion
            You are correct. Court of Appeals decision did not come up in my quick research.

            Des.

            Comment


            • #7
              while the circumstances in these excellently cited cases define their districts views on the subject matter; what is missing is how the IRA is set up in the estate. if for example there was a trust which enables the trustee of the estate to hold and distribute funds up until the last living grandchild hits the age 21, (actually that may be a calif stipulation as those are the only trusts i have seen with that type of language), no court, not even federal could touch the IRA. while these details are not as clear in the cases which have been cited, it also appeals that the local jurisdictions have more of a tendency to go along with their districts most current decisions.

              with all due respect to those i respect the most, (des, jb) i'm with LINR on this one as closest to being correct. and that means a ton of beans
              8/4/2008 MAKE SURE AND VISIT Tobee's Blogs! http://www.bkforum.com/blog.php?32727-tobee43 and all are welcome to bk forum's Florida State Questions and Answers on BK http://www.bkforum.com/group.php?groupid=9

              Comment


              • #8
                I will leave the final say in this matter to others as I have not done any indepth research. The reality is these issues don't come up too much (but are on the increase) and, even if they do, in my district, until the Court of Appeals rules otherwise, we look to Hamlin for guidance.


                Des.

                Comment


                • #9
                  des, LOL!! is there EVER a final say in a legal decision? they all can be fought on appeal, however, it's an interesting subject matter, i agree, as time goes on the courts may be more frequently faced with this issues.
                  8/4/2008 MAKE SURE AND VISIT Tobee's Blogs! http://www.bkforum.com/blog.php?32727-tobee43 and all are welcome to bk forum's Florida State Questions and Answers on BK http://www.bkforum.com/group.php?groupid=9

                  Comment


                  • #10
                    As I said, in Florida, an inherited IRA is an IRA for all purposes. We don't treat it as non-exempt.
                    Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
                    Status: (Auto) Discharged and Closed! 5/10
                    Visit My BKForum Blog: justbroke's Blog


                    I am not an attorney. Any advice provided is not legal advice.

                    Comment


                    • #11
                      I had forgotten that I had posted on this. I just made another post about this issue going before the US Supreme Court!

                      Comment


                      • #12
                        Oral argument in Clark v. Rameker was heard on March 24, 2014. Here is the trancript

                        http://www.supremecourt.gov/oral_arg...3-299_3kg4.pdf

                        And here is the audio recording

                        http://www.supremecourt.gov/oral_arg...13-299&TY=2013

                        We are waiting for the decision.

                        It only took a year and a half after this thread started to get there. Not bad.


                        Des.

                        Comment


                        • #13
                          Yet another decision I must wait for! (I'm so glad the Supreme Court denied cert on the Sinkfeld Case! - lien stripping in Chapter 7s!)
                          Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
                          Status: (Auto) Discharged and Closed! 5/10
                          Visit My BKForum Blog: justbroke's Blog


                          I am not an attorney. Any advice provided is not legal advice.

                          Comment

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