New Florida Law Adds Bankruptcy Protection to Inherited IRAs

Last May, we wrote about an 8th Circuit decision which held that inherited IRAs were protected assets in bankruptcy.   Florida is part of the 11th Circuit, not the 8th Circuit, which means that bankruptcy judges and federal court judges are not bound to follow 8th Circuit Court of Appeals precedent, although circuit court decisions are often influential.

In the 8th circuit case, a bankruptcy trustee argued that inherited IRAs deserved less protection that IRAs that contained money from the debtor's own labors.  The 8th Circuit judges disagreed and found that IRAs are protected retirement accounts, regardless of their origin.

Relatively few debtors in Florida or elsewhere have huge IRAs so Florida bankruptcy judges rarely address this question.  However, Florida lawyers have not had any specific direction about what federal judges in Florida would do with the question of whether inherited IRAs are protected in bankruptcy.

Now, it appears we have an answer.  Florida asset protection lawyer Jonathan Alper report on his blog that Florida statute section 222.21 will be amended to specifically included inherited IRAs as well as rollover IRAs.  This is favorable news for Florida residents and should provide some reassurance to individuals who need to file bankruptcy but who have been left an IRA or who expect to be the beneficiary of an estate that includes an IRA.

As always, consult with your lawyer before actually filing bankruptcy for an opinion specific to your situation at the time you need to file.