Bankruptcy and Inherited IRAs
In a recent US Supreme Court decision, the Court held that inherited IRAs will not be considered “retirement funds” and therefore exempt under federal bankruptcy exemptions.
The theory is that it is the policy of the court to protect individual retirement funds. Once these funds are transferred from the retiree the retiree’s beneficiary, they are no longer considered retirement funds.
It is still unclear whether or not such funds would be considered exempt if the beneficiary were the retiree’s spouse.
At any rate, those facing bankruptcy who have an inherited IRA or any other type of inherited retirement funds, should be very cautious when facing bankruptcy. Bankruptcy is a very specialized area of law, and therefore potential debtors should seek the advice of only experienced bankruptcy attorneys in their state.