In re Brandon Clark: Inherited IRA Exempt from Creditors

In In re Brandon C. Clark,  Case No.  3:11-cv-00482-bbc, the United States District Court for the Western District of Wisconsin reversed the Bankruptcy Court and held that an IRA a debtor inherited from her mother was exempt from the debtor’s creditors.

In August 2000 the debtor’s mother established an Individual Retirement  Account and named her daughter as the sole beneficiary.  The debtor’s mother died a little over a year later.  The debtor established an Inherited IRA account in her name and began taking the required minimum distributions.

In 2010 the debtor and her husband filed  a Chapter 7 bankruptcy petition and listed the Inherited IRA as exempt. At the time the debtor filed bankruptcy the Inherited IRA had an account value of approximately $298,000.00.The trustee objected to the debtor’s claimed exemption of the Inherited IRA.  The bankruptcy court agreed with the trustee and ruled that the Inherited IRA was not exempt.  The debtors appealed to the United States District Court.

The District Court reviewed pertinent provisions of the Bankruptcy Code as well as exemptions afforded the debtor by Wisconsin law.  Quoting from the Bankruptcy Appellate Panel for the Eighth Circuit in In re Nessa, the court noted, “Section 522(d)(12) requires that the account be comprised of retirement funds, but it does not specify that they must be the debtor’s retirement funds.” Looking to the BAP 8th Circuit decision in In re Nessa again, the district court observed, “§ 522(b)(4)(C), which provides that direct transfers of retirement funds from one fund or account exempt from taxation do not cease to qualify for exemption under subsection (d)(12) by reason of such a direct transfer.”

The District Court then analyzed the differences between the majority and minority opinions regarding the exemption of  inherited IRAs, ultimately ruling in favor of the debtor.  This opinion is a detailed map of most if not all of the cases that have addressed the exemption of inherited IRAs.

Full opinion at:

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