Will Inherited IRAs Be Used As A Tool for Protecting An Inheritance from Creditors?
June 13, 2016
Authored by: Kerry Moynihan
Originally posted on the Bryan Cave Bankruptcy & Restructuring Blog, found here.
A recent decision out of a New Jersey Bankruptcy Court highlights a loophole in the Bankruptcy Code which may allow Chapter 7 debtors to keep significant assets out of the hands of trustees and creditors.
In In re Norris,[1] the Bankruptcy Court considered whether an inherited individual retirement account is property of the bankruptcy estate. Prior to the Debtor filing her bankruptcy case, her stepmother passed away, leaving an inherited IRA naming the Debtor as the beneficiary. In her amended schedules, the Debtor listed the inherited IRA, claiming it as fully exempt under 11 U.S.C. § 522(d)(12), but also claiming the inherited IRA was not property of the estate.[2] The Chapter 7 Trustee objected to the exemption and requested the inherited IRA be deemed property of the bankruptcy estate.