In re: Travis M. Hamlin and Brittany B. Hamlin
465 B.R. 863
| 9th Cir. BAP | 2012Background
- Debtors Travis M. Hamlin and Brittany B. Hamlin in a Chapter 7 case claimed an exemption for an inherited IRA under Arizona law; the trustee objected, arguing inherited IRAs are not exempt, and the court ultimately allowed a federal exemption under 11 U.S.C. § 522(b)(3)(C).
- The inherited IRA belonged to Debtor Brittany Hamlin and was funded by her grandmother, transferred to an inherited IRA via trustee-to-trustee transfer, valued at about $31,878.32.
- Arizona opted out of the federal exemption scheme, but Congress added § 522(b)(3)(C) to protect retirement funds in accounts exempt from taxation under IRC provisions, including inherited IRAs.
- The bankruptcy court initially suggested the Inherited IRA might be exempt under § 522(b)(3)(C) and then allowed the amendment to Schedule C after multiple hearings.
- Trustee appealed the February 9, 2011 order overruling objections and allowing the exemption; the panel determined it had jurisdiction and that the final order correctly allowed the exemption.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Are funds in an inherited IRA exempt under § 522(b)(3)(C)? | Trustee argued inherited IRAs are not retirement funds. | Debtors argued inherited IRA falls under § 522(b)(3)(C) as retirement funds in an exempt account. | Yes; inherited IRAs are exempt under § 522(b)(3)(C) subject to § 522(n) limits. |
| Does § 522(b)(4)(C) support continued exemption for inherited IRAs after trustee-to-trustee transfer? | Trustee contends transfers do not preserve exemption. | Debtors rely on § 522(b)(4)(C) to preserve exemption after transfer. | Yes; direct transfers of tax-exempt funds continue to be exempt under § 522(b)(3)(C) or (d)(12). |
Key Cases Cited
- In re Nessa, 426 B.R. 312 (Bankr. W.D. Wash. 2010) (holds inherited IRAs are retirement funds exempt under § 522(b)(3)(C))
- In re Tabor, 433 B.R. 469 (Bankr. M.D. Pa. 2010) (applies two-factor test to § 522(b)(3)(C) and supports exemption for inherited IRAs)
- In re Kuchta, 434 B.R. 837 (Bankr. N.D. Ohio 2010) (confirms inherited IRAs can be exempt under § 522(b)(3)(C))
- In re Thiem, 443 B.R. 832 (Bankr. D. Ariz. 2011) (treats inherited IRAs as retirement funds exempt under § 522(b)(3)(C))
- In re Weilhammer, 2010 WL 3431465 (Bankr. S.D. Cal. 2010) (reaffirms exemption of inherited IRAs under § 522(b)(3)(C))