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Recent Supreme Court to Impact Asset Protection Strategies for Inherited IRA Holders, According to IRA Financial Group Tax Partner

June 24, 2014

New York, NY (PRWEB) June 24, 2014

On June 12, 2014, the Supreme Court unanimously upheld a Seventh Circuit decision that said inherited IRAs do not enjoy the protections of IRAs in bankruptcy proceedings. Tax law treats IRAs inherited from a non-spouse ("Inherited IRAs") differently from IRAs bequeathed by a spouse. According to Adam Bergman, a tax partner with the IRA Financial Group, there are millions of inherited IRAs that are now being confronted with the prospect of not having those assets protected from creditors when filing for bankruptcy.

In Clark v. Ramekek, No. 13-299, the petitioner in Clark v. Rameker, Trustee, Hedi Heffron-Clark, inherited an IRA worth about $300,000 in 2001. In October 2010, the Clarks filed voluntary joint bankruptcy and claimed an inherited IRA under the Section 522 exemption, to which the bankruptcy trustee and creditors objected. The district court ruled that inherited IRAs are exempt because they retain their character as retirement funds, but the U.S. Court of Appeals for the Seventh Circuit reversed that ruling. The Supreme Court unanimously upheld a Seventh Circuit decision that said inherited IRAs do not enjoy the protections of IRAs in bankruptcy proceedings.

According to Mr. Bergman, the Court's analysis turned on key legal distinctions between inherited IRAs which one inherited from a non-spouse and an IRA that one sets-up themselves, either through annual contributions or by rolling over assets from a company plan. The Court went on to describe several features which make inherited IRAs unique and suggest that they are not retirement assets. The Court noted that unlike IRA owners, inheritors can't put additional funds into the account, and they can take out money at any time without penalty. In fact, generally, non-spousal IRA heirs must either withdraw the entire account balance within five years of the original owner's death, or take out a calculated minimum amount each year, starting by Dec. 31 of the year after the IRA owner died.

According to Mr. Bergman, the Court's ruling limits the definition of what are "retirement funds" for purposes of protection against creditors in bankruptcy. In 2005 President Bush signed into law the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). While, on the whole, the law was designed to make filing for bankruptcy less appealing, it had a silver lining for retirement account owners. BAPCPA afforded a great deal of bankruptcy protection to "retirement funds," providing IRAs and Roth IRAs with a cumulative $1 million inflation-adjusted (currently $1,245,475) exemption and employer-sponsored plans with an unlimited exemption. The Court's ruling seemingly treats inherited IRAs from a non-spouse as not "retirement funds".

The question this Case raises is does the ruling apply to all inherited IRAs, including IRAs inherited from a spouse? According to Mr. Bergman, although the Supreme Court's decision doesn't explicitly state one way or another, its ruling seems to be limited to IRAs inherited by someone other than a spouse (non-spousal inherited IRAs). There are a number of special rules for spousal beneficiaries under the tax code, including the ability for a surviving spouse to rollover a decedent's IRA into their own IRA, which would seem to treat spousal inherited IRAs as "retirement funds" under BAPCPA. In addition, because an IRA inherited from a deceased spouse can be changed into the surviving spouse's name, the IRA would seemingly not being considered inherited any longer.

The IRA Financial Group believes the ruling will likely impact a considerable segment of the population who have inherited IRAs from a non-spouse and will certainly change the way asset protection and estate planning is conducted for these account holders.

The IRA Financial Group was founded by a group of top law firm tax and ERISA lawyers who have worked at some of the largest law firms in the United States, such as White & Case LLP, Dewey & LeBoeuf LLP, and Thelen LLP.

IRA Financial Group has helped thousands of clients take back control over their retirement funds while gaining the ability to invest in almost any type of investment, including real estate without custodian consent.

To learn more about the IRA Financial Group please visit our website at or call 800-472-0646.

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Source: PR Web

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