Inherited IRA not protected from Creditors

In his recent article for the May 2007 RPPT, Jim Roberts (Glast,Phillips & Murray, P.C., Dallas, Texas) has written InheritedIRA Not Protected From Creditors.  Here are the opening paragraphs:

Federal law provides protection formost qualified plans, including 401(k), pension and profit sharing plans.Butprotections for Individual Retirement Accounts (“IRAs”) are a matter of statelaw. Most, if not all, states provide that IRAs are exempt. But there is a growingbody of case law questioning the exemption of inherited IRAs.

A recent case highlights thisgrowing trend. In Re: Russell Jarboe d/b/a RJ’s Brokerage & Plants 1(cite)was a case out of the United States Bankruptcy Court for the Southern Districtof Texas, Houston Division. It interpreted Texas law and, in particular, §42.0021 of the Texas Property Code. In general, subsection (a) of thatprovision exempted from seizure by creditors those assets, whether vested ornot, in “any stock bonus, pension, profit sharing, or similar plan, including aretirement plan for self-employed individuals, and under any annuity or similarcontract purchased with assets distributed from that type of plan, and underany retirement annuity or account described in Section 403(b) or Section 408Aof the Internal Revenue Code of 1986, and under any Individual Retirement Accountor any Individual Retirement Annuity, including a simplified employee pension plan,and under any health savings account described in Section 223 of the Internal RevenueCode of 1986, is exempt from attachment, execution, and seizure for the satisfactionof debts unless the plan, contract or account does not qualify under the applicableprovisions of the Internal Revenue Code of 1986.”