June 18, 2014

The U.S. Supreme Court’s decision in Brandon C. Clark and Heidi K. Heffron-Clark v. William J. Rameker, Trustee, et al. on June 12, 2014, allowing creditors to tap into inherited Individual Retirement Accounts (IRAs), accepts the views put forth in an amicus brief written by the firm on behalf of estate and tax expert Professor Seymour Goldberg.  The brief argued that, based on the tax treatment of inherited retirement accounts, which differs substantially from taxation of accounts in the hands of their original owners, IRA money inherited by nonspouse beneficiaries should not be considered “retirement funds” that qualify for exemption from a bankruptcy estate.  Instead, in many ways, the brief contended, nonspousal inherited retirement accounts are better characterized as anti-retirement funds: they are structured so as to require immediate consumption of the funds rather than to promote future savings.  

In a unanimous decision written by Justice Sonia Sotomayor, the court agreed, ruling that IRA money not inherited from a spouse is not protected in bankruptcy proceedings.  While most types of retirement accounts cannot be accessed by creditors in a bankruptcy case, a rule meant to encourage people to save for the future, Justice Sotomayor wrote, "Nothing about the inherited IRA's legal characteristics would prevent (or even discourage) the individual from using the entire balance of the account on a vacation home or sports car immediately after her bankruptcy proceedings are complete.”

Jenner & Block Partner Matthew S. Hellman led the team that drafted the brief, assisted by Partner Catherine L. Steege and Associate Adam G. Unikowsky.