Possible Inheritance

[bklost]

My wife and I will probably file Ch 7 in the next few months. I have to put some time between some credit card charges/advances and my filing date. My wife will inherit an IRA and some cash from her father when he passes and he has advanced stages of Parkinsons. He is doing well today, but the disease will take him sooner rather than later. If my wife inherits the money within 6 months I understand that it could be used to pay creditors. Because some of the inheritance is an IRA I was thinking that might be exempted. Does anybody know if an inherited IRA is exempt the same way your personal IRA is exempt. I live in Oregon. Thanks for all the great info on this forum.

[Flamingo]

It doesn't matter where the money is, it's an inheritance. When the owner of the IRA passes, that money becomes part of his estate just as any other cash, assets, stocks, etc. would. How could someone else's IRA in their name be exempted in your bankruptcy?

[LadyInTheRed]

Is your father-in-law mentally competent? If he is and he finds it objectionable for the assets he leaves to your wife to be used to pay her creditors, he should see an estate planning attorney about the possibility of creating a spend-thrift trust and naming the trust as the beneficiary of the IRA. Whether this is possible will depend on state law.

[Flamingo]

Has your wife consulted an elder care or estate lawyer about your father's situation? LadyintheRed brings up an excellent point - estate planning. While it may look bad to approach this due to your thinking her father could pass during the six months involving your Chapter 7 filing while he is doing well. it never hurts to consult an elder care lawyer or estate lawyer who can advise how things should/could be handled.

[BCA2009]

It doesn't matter where the money is, it's an inheritance. When the owner of the IRA passes, that money becomes part of his estate just as any other cash, assets, stocks, etc. would. How could someone else's IRA in their name be exempted in your bankruptcy?

In some cases the an IRA can be passed on to the children in the form of an IRA. It would become an IRA in the childs name and the child would be be required to withdraw the IRA funds equally over their life expectancy. So it would be a traditional IRA in the childs name.

But I don't know how this would be affected by BK. You need to a CPA/Tax Attorney that specializes in estate planning.

Even though he has a disease, if he wasn't on his "death bed". I wouldn't feel obligated to disclose it up front. Obvisously if he does die within the timeframe indicated by BK law you would need the trustee know.

[bklost]

Thanks for the advice. I am aware of how the IRA will be transferred to my wife and how she must take distributions based on her life expectancy. It will stay an IRA. The question really is if inherited IRAs are exempt in BK like regular IRAs are. I will talk to an expert. I don't intend on telling the trustee that we are expecting an inheritance, because he could live several more years. He is definitely not on his death bed. However, I would definitely tell the trustee if he did pass during the 6 months. For this reason I need a plan to avoid losing the inheritance if at all possible.

[BKInLA]

That would be sad to see your FIL's retirement savings handed over to your creditors. I hope you are able to do something to protect it beforehand...

[Spagal]

If your wife is a named beneficiary on an IRA those funds will remain in the fathers name until she sends appropriate proof of his death and usually a Medallion Guarantee and an application. These funds will not transfer to her until she initiates it. And no they do not become part of the estate unless a) the estate is named as beneficiary or b) there is no beneficiary named or c) the beneficiarys disclaim the assets.

That being said...technically IRA money wouldn't have anything to do with your wife until she initiated the transfer.

[keepmine]

2 points. The timeframe is not 6 months but, 180 days and the clock starts with the bk filing date-not the discharge date.

http://doney.net/bkcode/11usc0541.htm

[catleg]

I think I have read that IRA's acquired by inheritance don't enjoy the same protections; however, seems to me you could delay transfer into your own name for a long time and wait out any bankruptcy issues.

Parkinson's isn't something you typically die from, usually people die from some kind of complication like falling down. So he could last a long time.

[LadyInTheRed]

If she is the named beneficiary or a beneficiary by the IRA's default beneficiary designation, she will be entitled to make a claim on the day her father dies, which hopefully will be a long time in the future. If an inherited IRA can be taken by the trustee (I believe I've read that the law is unsettled on that question or varies by district), I doubt a beneficiary can just wait to file a claim in order to keep it out of the hands of the trustee. The beneficiary could disclaim the IRA so it can go to whoever the contingent beneficiary is.

[rcoveles]

Hope I don't get smacked around for reviving this thread (it's only 20 days old)...

I have a twist on this situation. What if all things remain the same, but I am filing Ch 7 alone, and my wife is NOT filing. The potential inheritance comes from HER father, in HER name.

If he passed in the 180 day timeframe..would it matter?

Next question - let's say I was a year or two into a chapter 13. Let's assume I'm paying 1k per month, and am at less than 100% payback.

If my wife were to inherit money, and wanted to pay off MY 13, or lend me the $ and move on with our lives..would it be allowed? I know an early payoff at less than 100% is usually unheard of, but would this be a possibility?

[becky20]

You can pay off your chapter 13 at any time, BUT, let's say your payback is only 20%, your payments are 500 a month, and you have 3 years left of your plan. Your buy-out would NOT be 500*36 (which is 18000) but would be a payout at 100%. So, if you had 100k worth of debts that had filed claims, even if your remaining payments would be equal to 18000, in order to buy out your plan early you'd have to pay the full 100k. So my guess is that, unless you're at 100% payout, you wouldn't want to do that. That being said, not sure, you might have to pay the inheritance towards the plan anyway because it's considered "income" (though because your wife did not file, not entirely sure if that would apply).

All this is simply my interpretation and opinion based on everything I've heard and read.

[xracerdogs]

I am new to this. Husband mother died and he received about 30,000 ....now we are about to file a chapter 13....will they take the entire amount to go into payback? His income is unemployment and it is only 14,000.00 per year.

[Flamingo]

I am new to this. Husband mother died and he received about 30,000 ....now we are about to file a chapter 13....will they take the entire amount to go into payback? His income is unemployment and it is only 14,000.00 per year.

You need to bring this to the attention of your attorney right away as it will probably completely revise your situation. No one knows what amount the trustee would take as it all depends on your entire financial situation, but you need to report this ASAP.