In Re Clark
450 B.R. 858
Bankr. W.D. Wis.2011Background
- Debtors Brandon Clark and Heidi Heffron-Clark filed for Chapter 7 on October 29, 2010 in the Western District of Wisconsin.
- Trustee William Rameker and judgment creditor Resul and Zinije Adili object to the exemption claimed for an inherited IRA.
- Heidi Heffron-Clark is the beneficiary of her mother Ruth Heffron's IRA; Ruth died in 2001 and Heidi established an Inherited IRA on November 28, 2001.
- Distributions have been received from the Inherited IRA since January 2002, with the Inherited IRA valued at $293,338 on Schedule C.
- Debtors claim exemption under Wisconsin statute Wis. Stat. § 815.18(3)(j) and under 11 U.S.C. § 522(b)(3)(C); the trustee and creditor challenge the exemption as improperly claimed.
- The court weighs whether inherited IRAs constitute retirement funds eligible for exemption under § 522(b)(3)(C) and whether the exemption is supported by Wisconsin law.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does the inherited IRA constitute retirement funds under § 522(b)(3)(C)? | Heffron-Clark argues the funds are retirement funds by plain meaning and are exempt. | Trustee argues the inherited IRA holds no retirement funds since it passed from decedent and cannot be used for retirement. | No; inherited IRA does not constitute retirement funds under § 522(b)(3)(C). |
| Are the funds in an account exempt from taxation under IRC provisions for § 522(b)(3)(C)? | Inherited IRA should be exempt as retirement funds under IRC provisions cited by § 522(b)(3)(C). | Inherited IRA is not a traditional retirement fund, and IRC exemptions do not apply. | Not established; the inherited IRA is not shown to be exempt under the listed IRC provisions. |
| Does § 522(b)(4)(C) apply to preserve or destroy exemption for a direct transfer of retirement funds? | § 522(b)(4)(C) expands or preserves exemption for transfers; inherited IRA should still qualify. | § 522(b)(4)(C) does not apply because the account does not contain retirement funds. | Inapplicable; § 522(b)(4)(C) does not save the exemption here. |
| Does Wisconsin Wis. Stat. § 815.18(3)(j) exempt the inherited IRA? | The exemption for retirement benefits includes IRAs and inherited IRAs should qualify. | Kirchen disfavors application of the state exemption to inherited IRAs. | Wisconsin exemption does not apply to inherited IRAs; the exemption is disallowed. |
Key Cases Cited
- In re Nessa, 426 B.R. 312 (8th Cir. BAP 2010) (interprets § 522(b)(3)(C) to cover retirement funds in inherited IRAs)
- In re Kuchta, 434 B.R. 837 (Bankr.N.D. Ohio 2010) (favors view that inherited IRAs may fall under § 522(b)(3)(C))
- In re Tabor, 433 B.R. 469 (Bankr.M.D. Pa. 2010) (supports inclusion of inherited IRAs under § 522(b)(3)(C))
- In re Kirchen, 344 B.R. 908 (Bankr.E.D. Wis. 2006) (initially rejected state exemption for inherited IRAs under § 815.18(3)(j))
- In re Chilton, 426 B.R. 612 (Bankr.E.D.Tex. 2010) (district court reversed later; discussed narrow view of exemptions)
- In re Thiem, 443 B.R. 832 (Bankr.D. Ariz. 2011) (analyzed inherited IRA exemptions under § 522(b)(3)(C))