Kenneth Kelly, et al. v. Thomas A. Stewart

This appeal concerns the garnishment of an inherited Individual Retirement Account. Advanced Hearing Aid Group, LLC (“AHAG”), Gary Kelly, Kenneth Kelly, and Matthew Kelly (“Plaintiffs,” collectively) filed an application for writ of garnishment in the Chancery Court for Montgomery County (“the Trial Court”) against Thomas A. Stewart (“Defendant”). Plaintiffs sought to collect a judgment against Defendant stemming from a lawsuit over AHAG. Specifically, Plaintiffs sought to garnish an IRA that Defendant inherited from his mother (“the Inherited IRA”). Defendant is both a fiduciary and beneficiary of the Inherited IRA. Defendant filed a motion to quash, citing Tenn. Code Ann. § 26-2-105(b) and its exemption of certain retirement plans from garnishment. The Trial Court held that, while the Inherited IRA was exempt from garnishment initially, it lost its exempt status because Defendant made prohibited transactions from the Inherited IRA to a disqualified party, a revocable trust of which Defendant is a 50% or more beneficiary (“the Revocable Trust”). Defendant appeals, arguing that he essentially transferred the funds to himself, which all sides agree is permitted. We hold, inter alia, that Tenn. Code Ann. § 26-2-105(b) never applied to the Inherited IRA in the first place. We hold further that, even if the Inherited IRA had once been exempt, it stopped being exempt after Defendant’s prohibited transactions. We affirm as modified. Pursuant to AHAG’s operating agreement, AHAG is entitled to an award of reasonable attorney’s fees on appeal, the amount of which the Trial Court is to determine on remand.