A New Supreme Court Decision Impacts Estate Planning


A ruling by the U.S. Supreme Court holding that assets contained in an inherited individual retirement account (IRA) don’t qualify as retirement funds for the purposes of bankruptcy exemption has turned the estate planning community on its head. The Supreme Court’s ruling is “sending seismic shock waves through the estate planning community,” said Gail Buckner, a retirement and financial planning specialist and instructor with Franklin Templeton Investment.

The ruling will make it easier for creditors and bankruptcy attorneys to lay claim on inherited retirement assets, experts say.

In Clark v. Rameker, the Supreme Court unanimously affirmed a lower court ruling in favor of bankruptcy trustee William J. Rameker. The Rameker decision impacts a sizeable segment of the nation’s wealth. Quite clearly, inherited retirement assets are no longer as “bulletproof” from creditors as they were before the decision.

A recent InsuranceNewsNet article, titled Court Decision Has Implications For Estate Planning,” explained that the Supreme Court was asked if federal bankruptcy law exempted an inherited IRA from a debtor’s estate in bankruptcy. Justice Sonia Sotomayor wrote in her decision that an inherited IRA account did not qualify as a retirement fund, so it would not be exempt. Inherited IRAs do not fall under the definition of a retirement fund, the Justices held, because the heir to the fund, other than a spouse, is not permitted to put money into the account. The accountholder (or heir) must also withdraw all of the funds from the account or set up annual distributions. It does not matter how close this inherited IRA accountholder is to retirement, and he or she must pay taxes on those distributions. Permitting an inherited IRA to be exempt from creditor claims would ultimately undermine the purpose of the Bankruptcy Code, Sotomayor explained.

What does this mean for your IRA? How will you handle it in your estate planning strategy?

Speak with your estate planning attorney, get a thorough explanation, and put a sound plan in place.

Reference:  InsuranceNewsNet (July 24, 2014) Court Decision Has Implications For Estate Planning


Subscribe to our newsletter

Act now.

Provide protection for yourself and the people you care for.

Take action before it becomes a race against time.

Rely on the Barbara M. Pizzolato, P.A. skilled estate team to shield your work and guide your loved ones.

We specialize in estate planning, incapacity planning, business planning, trust administration, and probate.

Take your first step by contacting us or attending a free estate planning event today.

Time waits for no one.

Skip to content