N.J. BANKRUPTCY COURT – INHERITED IRA NOT PROPERTY OF ESTATE

April 2, 2015 by Craig A. Squitieri ·

In the matter of In re Christopher P. Andolino, Case No. 13-17238 (RG), Judge Kaplan of the New Jersey bankruptcy Court, over the objection of the Standing Chapter 13 Trustee, ruled that an inherited IRA is not property of the bankruptcy estate. In Andolino, the debtor inherited a $120,000.00 IRA from his deceased mother for which the debtor disclosed in his bankruptcy petition at Schedule B. The trustee took the position that the U.S. Supreme Court's decision in Clark v. Rameker, 134 S.Ct. 2242 (U.S.2014) required that the $120,000.00 inherited IRA be subject to the debtor's creditors and not exempt. The trustee's position was that a traditional IRA, established by the Debtor's mother would not have been deemed property of the estate if the Debtor's mother had filed her own bankruptcy), morphs into an asset that is property of the Debtor's bankruptcy estate, by virtue of its new status as an inherited IRA. Judge Kaplan in rendering his decision in favor of the debtor, looked first to Section 541(c)(2) of the Bankruptcy Code to determine what is considered property of the bankruptcy estate. Judge Kaplan then looked to New Jersey State law, specifically N.J.S.A. 25:2-1(b) to determine if the inherited IRA is part of the bankruptcy estate which further directed Judge Kaplan to then look to the Internal Revenue Code to determine whether an inherited IRA is a "qualifying trust". Ultimately, Judge Kaplan ruled that the Debtor's inherited IRA "retains its designation as a "qualified trust" and therefore cannot be included as property of the bankruptcy estate.