Clark v. Rameker Archives - FREE CONSULTATION

The U.S. Supreme Court recently answered this question. In an opinion written by Justice Sonia Sotomayor the Court found that Heidi Heffron-Clark, who inherited an IRA from her mother in 2001 and filed for bankruptcy nine years later, could not protect the account from her creditors.

The court’s analysis in Clark v. Rameker ruled that there were key legal distinctions between inherited IRAs and those you set up for yourself through annual contributions or company plans. The fact that inheritors cannot put additional funds into the inherited IRA account and the beneficiary can withdrawal money at any time without incurring a penalty make these inherited IRA accounts unique and “suggest that they are not retirement assets,” the court notes.

Another key distinction: Non-spousal IRA heirs must either withdraw the entire account balance within five years of the original owner’s death, or take out a minimum amount each year, starting December 31st the year after the IRA owner died.

The Supreme Court’s decision does not affect bankruptcy protection for retirement accounts of your own, which were expanded by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.

The decision does have important ramifications for spouses. A spouse who inherits their husband or wife’s IRA has an option not available to other inheritors. The surviving spouse can roll the assets into his or her own IRA and postpone distributions from a traditional IRA until they turn 70½. However, there is a catch to this. Just like other IRA owners they may have to pay a 10% early-withdrawal penalty if the money is taken out before age 59½ from the surviving spouse’s own IRA.

If you have any questions on this topic or are in a financial crisis and considering filing for bankruptcy, contact an experienced Miami bankruptcy attorney who can advise you of all of your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade & Garcia, P.A. has been helping people from all walks of life build a better tomorrow. Our attorneys’ help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. The day you hire our firm, we will contact your creditors to stop the harassment. You can also find useful consumer information on the Kingcade & Garcia website at www.miamibankruptcy.com.

Clark v. Rameker, a bankruptcy case having to deal with inherited retirement funds could have an impact on future bankruptcy cases across the U.S. The case involves a personal bankruptcy filed in 2010 by a husband and wife after the pizza shop they opened failed. It left the couple nearly $700,000 in debt to their landlord, mortgage lenders and business creditors.

The wife inherited approximately $450,000 from her mother’s IRA when she passed away. The couple argued that these funds were protected from their creditors. Federal bankruptcy code allows up to $1.3 million in retirement funds (i.e. – Roth IRA’s, 401K’s, etc.) be exempt from creditors. However, the issue before the Supreme Court is whether someone else’s IRA that was inherited by the debtor is allotted that same protection.

The bankruptcy trustee in this case argues that the funds should be made available for repaying the couple’s creditors and that once the IRA money is passed down to an heir, the money no longer functions in the same way the retirement money once did (i.e. – it is no longer subject to penalties and taxes).

The trustee appealed to a three-judge panel and the appellate court held that the funds ceased to be protected when they were inherited. The appellate court’s decision conflicts with the two other court decisions holding that retirement funds remain protected even if they are passed down through inheritance.

The Supreme Court’s decision will settle the dispute. The Court noted that retirement funds are the only ones listed in the Bankruptcy Code that do not specifically note that it has to be the petitioner’s property. In order to settle the matter, the Court must interpret Section 521(b)(3)(C) of the Bankruptcy Code, which states that “retirement funds to the extent that those funds are in a fund or account that is exempt from taxation” are protected in bankruptcy cases. This decision is seen as an important one because it will have an impact on future cases, but experts say it will be months before the Court issues its ruling.

If you have any questions on this topic or are in a financial crisis and are considering filing bankruptcy, contact an experienced Miami bankruptcy attorney who can advise you of all of your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade & Garcia, P.A. has been helping people from all walks of life build a better tomorrow. Our attorneys’ help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. The day you hire our firm, we will contact your creditors to stop the harassment. You can also find useful consumer information on the Kingcade & Garcia website at www.miamibankruptcy.com.

Tag: Clark v. Rameker

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