In a case decided on June 17, the Sixth Circuit Court of Appeals reversed the Tennessee Bankruptcy Court and US District Court regarding the continuing exemption of funds in an IRA account. In In re Daley, the chapter 7 trustee argued that because the IRA account agreement contained boilerplate language granting a lien in the IRA account to secure any debt with Merrill Lynch (the location of the account), that under tax laws, the IRA was no longer exempt from creditors. Because the debtor had never had any other accounts or loans with Merrill Lynch, the Sixth Circuit held that there is a statutory presumption that the funds in the IRA remained exempt from all creditors.
This case reminds us all that getting full information about all accounts is crucial. Had there been loans against the IRA account with Merrill Lynch, or a second account at Merrill Lynch such as a margin trading account, the outcome may well have been different. The entire IRA may have been lost! All debtors would be wise to not have other accounts at the same location as that of their IRA, and should review their account agreement to determine if it contains boilerplate lien provisions. A big reminder to not just automatically assume that there will be no fights over exemption of IRA accounts.