In Re Johnson
452 B.R. 804
Bankr. W.D. Wash.2011Background
- Debtors filed a voluntary Chapter 7 petition on October 6, 2010.
- In Schedule B, Debtors list two IRAs—Account #7822 ($27,319.04) and Account #7171 ($30,411.46)—as exempt under § 522(d)(12).
- Both accounts were inherited IRAs: funds transferred as beneficiary after parents’ deaths via trustee-to-trustee transfers to NYL accounts, with distributions elected over lifespans beginning in 2003 and 2007 respectively.
- Trustee objected to the exemption on December 29, 2010, contending inherited IRAs are not exempt under § 522(d)(12).
- Court applies a two-prong test: funds must be retirement funds and must be in an IRC-exempt account; court concludes both requirements are met here.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether inherited IRAs fit § 522(d)(12) exemption | Johnson argues inherited IRAs are retirement funds exempt under § 522(d)(12). | Trustee argues inherited IRAs are not retirement funds under § 522(d)(12). | Inherited IRAs are exempt under § 522(d)(12). |
| Whether inherited IRAs constitute retirement funds | Funds originated as retirement funds for the parents and retain retirement status after transfer. | Trustee contends they do not constitute the debtor’s retirement funds. | Yes; they are retirement funds under § 522(d)(12). |
| Whether the funds are exempt from taxation under IRC | Inherited IRAs are exempt from taxation under 26 U.S.C. § 408(e)(1). | Trustee does not contest tax-exemption status but disputes applicability to exemption under § 522(d)(12). | Yes; funds are tax-exempt under § 408. |
| Effect of trustee-to-trustee transfer on exemption | Direct transfers preserve exemption status under § 522(b)(4)(C). | Trustee may argue transfer could affect exemption in some contexts. | Transfers do not negate exemption under § 522(b)(4)(C). |
| Overall interpretation of statutory framework for inherited IRAs under BAPCPA | Post-BAPCPA cases support exemption for inherited IRAs under § 522(d)(12)/(b)(3)(C). | Some courts have disagreed, but the Court finds the persuasive authorities favor exemptions. | Inherited IRAs may be exempt; Trustee's objection overruled. |
Key Cases Cited
- In re Nessa, 426 B.R. 312 (8th Cir. BAP 2010) (supports exemption of inherited IRAs under § 522(b)(3)(C) or (d)(12))
- Chilton v. Moser (In re Chilton), 444 B.R. 548 (Bankr.E.D. Tex. 2011) (held inherited IRAs may be exempt under § 522(d)(12))
- In re Thiem, 443 B.R. 832 (Bankr.D. Ariz. 2011) (supports exemption for inherited IRAs under § 522(d)(12) or (b)(3)(C))
- In re Kuchta, 434 B.R. 837 (Bankr.N.D. Ohio 2010) (analyzed exemptions for inherited IRAs under BAPCPA provisions)
- In re Tabor, 433 B.R. 469 (Bankr.M.D. Pa. 2010) (supports exemption for inherited IRAs under § 522(d)(12))
- In re Klipsch, 435 B.R. 586 (Bankr.S.D. Ind. 2010) (noted debates on exemptions but analyzed under § 522(b)(3)(C)/(d)(12))