Jeffrey Klobucar, Bassford Remele, P.A.
Contributing Editor: Andrew Stoebner, Lapp, Libra, Thomson, Stoebner & Pusch, Chtd.
Judge_Ridgway__In_re_Jacklitch.pdf
In In re Jacklitch, No. 17-60624 (Bankr. D. Minn. Jul. 31, 2018), the bankruptcy court overruled the trustee’s objection to the debtor’s claimed exemption and allowed the exemption in funds held in an IRA.
Under Minn. Stat. § 550.37, subd. 10, “[a]ll money received by, or payable to, a surviving spouse or child from insurance payable at the death of a spouse, or parent, not exceeding $46,000,” is exempt. Minn. Stat. § 500.37, subd. 20 provides that the exemption is not affected by the subsequent deposit of such funds in a bank or any other financial institution if the funds are traceable to their exempt source.
The debtor claimed $44,809.64 in an IRA exempt under Minn. Stat. § 550.37, subds. 10 and 20, and, alternatively, Minn. Stat. § 550.37, subd. 24. The trustee objected to the claimed exemption in the amount of $34,000, which the trustee and the debtor agreed were traceable to life insurance proceeds resulting from the passing of the debtor’s spouse.
The trustee’s objection to the claimed exemption under Minn. Stat. § 550.37, subds. 10 and 20 was based upon language in Ross v. Simser that “the tracing of an exemption of life insurance does not extend beyond its deposit into a checking or savings account at a financial institution.” 258 N.W. 582 (Minn. 1935). In overruling the objection, the court examined the language of subdivision 20, which provides only that the exempt funds “traceable to their exempt source,” may be subsequently deposited “in a bank or any other financial institution” and retain their exempt status—effectively holding that subdivision 20 altered the effect of Ross.
The basis for the objection to the debtor’s claimed exemption under subdivision 24 was that the debtor’s right to receive payments from an IRA arguably is not on account of illness, disability, death, age or length of service pursuant to the holding in In re Jenkins, 300 B.R. 348 (Bankr. D. Minn. 2003). In overruling the objection, the court noted that a more recent decision by the Minnesota Supreme Court provided that IRAs are exempt property under subdivision 24 “as limited by the terms of subdivision 24(a) to an indexed present value and sums reasonably necessary for the support of the debtor and the debtor’s spouse and children.” Clark v. Lindquist, 683 N.W.2d 784, 788 (Minn. 2004). The court held, based on Clark, that the debtor did not need to prove the “right to payment is on account of illness, disability, death, age or length of service,” in order to claim such amounts exempt.