We’re here to help you discover all your options and make decisions with confidence.
FREE Estate Planning Webinar Sign Up Now!

Schedule Your Consultation Today!

(407) 574-8125

IRA's Fair Game in Bankruptcy

Get The Legal Help You Need
Home » IRA's Fair Game in Bankruptcy

Related Practice Areas


Warning: Undefined variable $product_tags in /home/usercpxy/domains/familyfirstfirm.com/public_html/wp-content/plugins/oxygen/component-framework/components/classes/code-block.class.php(128) : eval()'d code on line 6
No Results Found

IRA's Fair Game in Bankruptcy

December 17, 2014
Geoff Hoatson

Supreme Court Decision Makes Inherited IRAs Fair Game in Bankruptcy

A recent U.S. Supreme Court decision has changed the way inherited IRAs are viewed when it comes to bankruptcy, and calls for those who inherit these retirement account assets to find new ways to protect that inheritance.

In Clark v. Rameker, Heidi Heffron-Clark inherited an IRA from her mother. She received distributions from that inherited IRA for several years before filing Chapter 7 bankruptcy. Ms. Heffron-Clark relied on the Bankruptcy Code, which states that IRAs are exempt up to $1.245 million from bankruptcy, to claim that her inherited IRA qualified for the retirement account exemption.

In a unanimous ruling, the Supreme Court disagreed, distinguishing inherited IRAs from other IRAs established by an individual for his or her own retirement. Because the beneficiary of an inherited IRA cannot make contributions to that IRA, an inherited IRA does not provide any tax incentives, which is an important purpose of other IRAs. Since the beneficiary of an inherited IRA has different rules for taking distributions than other IRA owners, this also establishes inherited IRAs as different from other IRAs. These differences, the Court reasoned, are enough to disqualify an inherited IRA from qualifying for the federal bankruptcy exemption.

Even though some states offer protection for inherited IRAs in bankruptcy, a move to another state that does not offer this protection can endanger inherited IRA assets. IRA owners who wish to provide their heirs with valuable protection should consider naming a trust as beneficiary of IRA assets instead of heirs, who could instead be designated as beneficiaries of that trust.

The Court did not address spousal inherited IRA beneficiaries; however, since a spouse is allowed to roll over an inherited IRA into his or her own account, this may qualify a spousal inherited IRA for the bankruptcy exemption for retirement funds.

If you would like more information on how this ruling will affect you or a loved one, call our office and schedule a free consultation. Be sure to mention this blog post to waive the fee!

Copyright © 2022. Family First Firm – Medicaid & Elder Law Attorneys. All rights reserved.
The information in this blog post (“post”) is provided for general informational purposes only and may not reflect the current law in your jurisdiction. No information in this post should be construed as legal advice from the individual author or the law firm, nor is it intended to be a substitute for legal counsel on any subject matter. No reader of this post should act or refrain from acting based on any information included in or accessible through this post without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the recipient’s state, country, or other appropriate licensing jurisdiction.
Family First Firm – Medicaid & Elder Law Attorneys
(407) 574-8125
https://familyfirstfirm.com
Share This Blog

Our Locations

Orlando Office

Family First Firm - Medicaid & Elder Law Attorneys

1901 W Colonial Dr,
Orlando, FL 32804

Get Direction

Altamonte Springs Office

Family First Firm - Medicaid & Elder Law Attorneys
By Appointment Only

715 Douglas Ave Suite# 40,
Altamonte Springs, FL 32714

Get Direction

Get free legal advice sent to your inbox

Name(Required)

The information you obtain at this site is not, nor is it intended to be, legal advice.
You should consult an attorney for advice regarding your individual situation. Contacting us does not create an attorney-client relationship