Friday, November 29, 2013
In Clark v. Rameker, the U.S. Supreme Court will hear a case that could dictate how inherited individual retirement accounts will be treated in bankruptcy.
In 2010, the Clarks declared bankruptcy after their Soughton, Wisconsin, pizza shop fell victim to economic hardship. The Clarks owed creditors $700,000 and William Rameker, the trustee in charge of administering the bankruptcy estate, decided that $300,000 in an IRA inherited from Mrs. Clark’s late mother was fair game. However, the Clarks argued the inherited IRA was exempt under bankruptcy laws.
The 7th Circuit U.S. Court of Appeals sided with Rameker, holding that creditors could access inherited IRAs because they cease to be “retirement funds” when inherited from a deceased owner. This decision clashes with other court decisions, meaning that the U.S. Supreme Court could clear up this split and have a big impact on retirement and end-of-life planning.
See Nick Brown, U.S. High Court to Chart Fate of Inherited IRAs in Bankruptcy, Reuters, Nov. 26, 2013.
Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.