Inherited IRAs are protected in bankruptcy - sometimes
In a recent ruling, the U.S. Bankruptcy Court for Minnesota held that an inherited IRA was protected from the debtor's creditors under federal law. In re: Nessa, 105 AFTR 2d 2010-XXXX, 01/11/2010. The key difference between this decision and the earlier Texas and Florida decisions that held the inherited IRAs were not protected from creditors is that in Minnesota, bankruptcy debtors rely on federal property exemptions rather than state exemptions. In many states, including Texas, Florida and North Carolina, debtors must use state exemptions.
There has not yet been a ruling interpreting North Carolina statutory exemption for IRAs, but don't take a chance with your hard-earned retirement funds - leave them to your beneficiaries in an IRA Trust to ensure maximum protection from creditors.
Wondering about exemption of inherited ira in SC (opt-out state). Was thinking that the MN decision affirming 522(d)(12) exemption of inherited IRA would also mean that same reasoning would apply with 522(b)(3)(C) for inherited IRA?
david gaffney
david@gaffneylawfirm.com
RESPONSE: I haven't looked at SC law, but I would agree. I still think it's not worth the risk. I recommend using an IRA trust.