Article On Bankruptcy Protection of Tax-Qualified Retirement Plan Beneficiaries

Karen K. Suhre recently published an article entitled, Bankruptcy Protection of Tax-Qualified Retirement Plan Beneficiaries After Clark v. Rameker, 29 Probate & Property 3 (May/June 2015). Provided below is an excerpt from the article:

On June 12, 2014, a unanimous U.S. Supreme Court held that a beneficiary’s interest in an inherited individual retirement account (IRA) was not exempt from the beneficiary’s bankruptcy estate under Bankruptcy Code § 522(b)(3)(C). Clark v. Rameker, 134 S. Ct. 2242 (2014). Although Clark does not discuss the status of a beneficiary’s interest in other types of retirement arrangements, the opinion interprets the term “retirement funds” in a Bankruptcy Code exemption provision that expressly applies to tax-qualified retirement plans and other types of tax-favored retirement accounts. The reasoning of Clark could be applied to a beneficiary’s interest in other types of tax-favored retirement plans and accounts.

The “retirement funds” exemption at issue was added to the Bankruptcy Code by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), Pub. L. No. 109-8, 119 Stat. 23, and was intended to provide a clear, uniform national rule regarding the exemption of all tax-exempt retirement accounts in bankruptcy proceedings. Unfortunately, in the wake of Clark, a retirement fund beneficiary may now have to resort to alternative, complex theories, which may vary from jurisdiction to jurisdiction, to protect the beneficiary’s interest from creditors in bankruptcy.