Debtor’s Estate Set To Expand Or Contract Based On Supreme Court Ruling In Clark v. Rameker

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Before the Supreme Court this term is the question of whether a beneficiary individual retirement account (an “Inherited IRA”) is exempt from a debtor’s bankruptcy estate under 11 U.S.C. § 522(b)(3)(C) and (d)(12)2 of the Bankruptcy Code. The issue turns on 1) whether the funds in an Inherited IRA are “retirement funds,” and 2) whether an Inherited IRA is considered tax exempt under the Internal Revenue Code (the “Tax Code”).

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The primary provision at issue in Clark v. Rameker, pending before the Supreme Court, is § 522(b)(3)(C), which provides for the following exemption of property from a debtor’s estate: “retirement funds to the extent that those funds are in a fund or account that is exempt from taxation under section 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code of 1986.” The relevant provision under the Tax Code is § 408(e), which provides that “[a]ny individual retirement account is exempt from taxation under this subtitle.”

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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