Estate Planning

Inherited IRAs - the continuing saga in bankruptcy

By Greg Herman-Giddens

I previously blogged about inherited IRAs being subject to the claims of creditors, both in (In Re: Jarboe) and outside of (Robertson v. Deeb) bankruptcy, and one case (In Re: Nessa) where an inherited IRA was determined to be protected under federal law.

Here's a summary of the latest ruling, which contradicts the Nessa holding, courtesy of Robert Keebler, CPA:

In In Re: Chilton, the United States Bankruptcy Court for the Eastern District of Texas found that 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 bankruptcy estate under U.S.C. § 522(d)(12).  The Court also found that an inherited IRA is not a traditional IRA exempt from taxation under IRC § 408(e)(1).   In Re: Chilton, 105 AFTR 2d 2010-XXX, 03/05/2010;

There is really no way to reconcile the holdings in Nessa and Chilton, but the Chilton decision is clearly the minority view.  If you want to protect your IRA from your heirs creditors, it is vitally important to utilize a standalone IRA trust .
 

Full post as published by North Carolina Estate Planning Blog on March 11, 2010 (boomark / email).