In a matter of first impression, the U.S. Bankruptcy Court for the Northern District of New York recently analyzed whether a debtor may exempt from her bankruptcy estate a retirement account that was bequeathed to her upon the death of her parent. In In re Todd, 585 B.R. 297 (Bankr. N.D.N.Y 2018), the court addressed an objection to a debtor’s claim of exemption in an inherited retirement account, and held that the property was not exempt under New York and federal law. In ruling for the objecting creditor, the court analyzed New York law, the Internal Revenue Code and the Bankruptcy Code, none of which provided a basis to exempt the inherited retirement account from the debtor’s bankruptcy estate. The court also noted that inherited IRAs are treated differently under applicable law, and are subject to additional limitations, than are traditional IRAs.

Facts and Arguments of the Parties

Before filing for bankruptcy protection, Laurie Todd and her family were involved in a construction business. In the course of running that business, various family members entered into an indemnity agreement with a surety company that issued payment and performance bonds on behalf of the family’s construction company. Pursuant to these bonds, the surety company made substantial payments to various claimants, and sued Todd and other family members in state court to enforce its indemnity rights.

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