A Court Win for Asset Protection Planning

In recent years, asset protection planning has become as prevalent and as important as basic estate planning. Retirement funds are a category of assets exempt from execution by creditors, both under Tennessee law (TCA §26-2-105), and under the United States Bankruptcy Code (USC §522(d)(12)). In a recent U. S. District Court case in Texas, the U. S. District Court upheld that exemption. The facts in the case were that Shirley established an IRA account and named her daughter, Janice, as beneficiary. In 2007, Shirley died. Janice was allowed to make a trustee-to-trustee transfer of the inherited amount to another IRA, because the ownership of the new IRA was set up in the same way as the ownership of the old IRA, that being in the name of the decedent (Shirley) for the benefit of the IRA beneficiary (Janice). In 2008, Janice established an IRA account titled “Janice, Beneficiary – Shirley, Decedent,” to receive the funds of her mother’s IRA.

Later in the year, Janice filed Chapter 7 bankruptcy and listed the inherited IRA on her bankruptcy schedule and claimed it exempt from creditors under the Bankruptcy Code (USC §522(d)(12)). The Bankruptcy Court denied the exemption, but on appeal the U. S. District Court allowed the exemption from creditors.

The U. S. District Court ruled that the exemption met the two requirements under USC §522(d)(12) being: (1) the amount the Debtor seeks to exempt must be “retirement funds,” and (2) those retirement funds must be exempt from income taxation under one of several specified IRC provisions.

MY ADVICE: Asset protection can take simple forms or be quite sophisticated (such as asset protection trusts). When considering asset protection, look for all available alternatives, including statutory exemptions from execution for “retirement funds.”

For additional information on this Business article, please contact:

Will Bell

(731) 423-2414

bell@raineykizer.com

Source: Rainey, Kizer, Reviere & Bell, PLC

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