IRA Change of Trustee/ownership
I have a client who rolled over his 401k to a Hartford Variable Annuity in 1997 THROUGH UBS (the B-D at the time was JC Bradford & CO but was subsequently bought by UBS). The contract lists the IRA holder only as “annuitant” but the “OWNER” IS UBS. We have seen this before. Under these circumstances the “IRA/annuitant” has lost control of the assets inside the contract and is unable to make any changes e.g. change of beneficiary, change of allocations, change of B/D or Rep., etc. Upon my client’s inquiry as to what he can do to overcome the barrier to his ability to make changes directly with the Hartford, the ‘Owner”, UBS has recommended that UBS and the IRA/annuitant sign a change of ownership over to him.
My concern is that I have read in several places in IRC Section 408 that a change of ownership in some instances will eliminate the the tax deferred status and essentially generate a taxable event. I want to know if changing the ownership to the annuitant triggers a taxable event under section 408 or any other section of IRC even though there will be no transfer of assets outside the contract, surrender of any assets from the contract or any other movement of assets outside the contract other than future RMD’s.
I have been researching to learn how and for what purpose UBS has elevated what should be nothing more than custodial trusteeship to ownership of these contracts which effectively takes ownership rights for any changes to the contract from the original owner of the IRA. I am baffled and confused as to the ability of UBS to operate in this manner. I am looking for anyone who has anything to contribute to my understanding and especially for conclusive reference that will allow me to recommend that my client effect this change of ownership in order to make changes to the allocations within the sub-accounts which the current “owner” has refused to make or even allow that changes can be made under their arrangement.
Permalink Submitted by Denise Appleby on Wed, 2009-04-01 22:58
[quote=”dmaurice”]I have a client who rolled over his 401k to a Hartford Variable Annuity in 1997 THROUGH UBS (the B-D at the time was JC Bradford & CO but was subsequently bought by UBS). The contract lists the IRA holder only as “annuitant” but the “OWNER” IS UBS. We have seen this before. Under these circumstances the “IRA/annuitant” has lost control of the assets inside the contract and is unable to make any changes e.g. change of beneficiary, change of allocations, change of B/D or Rep., etc. Upon my client’s inquiry as to what he can do to overcome the barrier to his ability to make changes directly with the Hartford, the ‘Owner”, UBS has recommended that UBS and the IRA/annuitant sign a change of ownership over to him.
My concern is that I have read in several places in IRC Section 408 that a change of ownership in some instances will eliminate the the tax deferred status and essentially generate a taxable event. I want to know if changing the ownership to the annuitant triggers a taxable event under section 408 or any other section of IRC even though there will be no transfer of assets outside the contract, surrender of any assets from the contract or any other movement of assets outside the contract other than future RMD’s.
I have been researching to learn how and for what purpose UBS has elevated what should be nothing more than custodial trusteeship to ownership of these contracts which effectively takes ownership rights for any changes to the contract from the original owner of the IRA. I am baffled and confused as to the ability of UBS to operate in this manner. I am looking for anyone who has anything to contribute to my understanding and especially for conclusive reference that will allow me to recommend that my client effect this change of ownership in order to make changes to the allocations within the sub-accounts which the current “owner” has refused to make or even allow that changes can be made under their arrangement.[/quote]
dmaurice, it is hard to provide a specific response as some of the terminologies appear to be industry or ‘firm’ jargon. Is it possible that UBS is the owner ‘for the client’? Changing it so that the ownership is transferred to him sounds like that would be a distribution. Or maybe it’s just my unfamiliarly with annuity products.
Before taking any action, it may be a good idea to find out from UBS the tax-effect (whether reportable and/or taxable) if any, of such action.
I wish I could provide a more specific response…