Inherited IRAs Subject to Bankruptcy Creditors

By: Jason Palmisano

In 2001, Heidi Heffron-Clark of Wisconsin inherited an individual retirement account (IRA) valued just over $450,000 from her mother. In 2010, Heidi and her husband filed for bankruptcy. The Clarks sought to exclude the inherited IRA from their bankruptcy estate which would block their creditors from obtaining any proceeds from the inherited IRA.  At the time of the bankruptcy filing, the inherited IRA was worth approximately $300,000.  In a unanimous decision, the Supreme Court of the United States held the inherited IRA was included in their bankruptcy estate and was not protected from the Clark”s bankruptcy creditors.  The Supreme Court reasoned an inherited IRA is distinct from an individual’s own IRA, and thus not exempt from creditors in bankruptcy, for 3 reasons: read more