Good News for Inherited IRA Holders & Holders of Other Employer Sponsored Plans in Texas

A law recently passed by the Texas legislature and signed by the governor clarified that inherited IRAs, Health Savings Accounts (HSAs), and profit sharing, stock bonus, pension, annuity, deferred compensation or other similar plans, including a retirement plan for self-employed individuals, or a simplified employee pension plan, are exempt from attachment, execution and seizure for the satisfaction of debts.  These types of plans in general have long been exempt under Texas state law, and historically courts interpreted Texas Property Code Section 42.0021 to extend protection for these accounts after the original owner’s death to the same extent as they were before the death.  But the status of inherited accounts was thrown into confusion when a Texas bankruptcy court asserted that the exemption provided by Texas Property Code Section 42.0021 does not apply to inherited IRAs.  The case was In re Jarboe, 365 B.R.  717 (Bankr. S.D. Tex. 2007).  Texas Senate Bill 1810 specifies that the law does in fact apply to inherited accounts.  The bill was signed into law by the governor on June 17, 2011 and, unlike most laws passed by the Texas legislature, went into immediate effect because of its overwhelming support.  The clarification applies to an inherited IRA, annuity, account, or contract without regard to whether the plan, annuity, account, or contract was created before, on, or after the effective date of the act.

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