Court Holds Inherited IRA Not Part of Bankruptcy Estate

In the recent case, In re Andolino (Bankr. D. N.J., No. 13-17238, Feb. 25, 2015), a U.S. bankruptcy court determined that under New Jersey law, an inherited IRA is not part of the bankruptcy estate, despite the recent U.S. Supreme Court ruling in Clark v. Rameker.

Christopher Andolino inherited an IRA worth $120,000 from his mother.  He subsequently filed for Chapter 13 bankruptcy, claiming the IRA was exempt.  The bankruptcy trustee objected to Mr. Andolino’s bankruptcy plan, asserting that under Clark v. Rameker, inherited IRAs are property of the estate. 

Yet, the U.S. Bankruptcy Court, District of New Jersey, held that the inherited IRA is not property of the estate.  According to the court, “whereas the inherited IRA at issue in Clark was determined to be an asset of the bankruptcy estate pursuant to nonbankruptcy law, i.e., Wisconsin law, this court must first apply relevant New Jersey law to determine whether [Mr. Andolino’s] inherited IRA is properly of the bankruptcy estate.”  Under New Jersey law, an inherited IRA does not lose “qualified trust” status, so it is exempt form the bankruptcy estate. 

See Inherited IRA Not Part of New Jersey Resident’s Bankruptcy Estate, Resourceful Law, March 10, 2015.