Multiple IRA beneficiaries
I have a huge problem with a new prospective client. About a year ago an agent went in and sold this 80 year old female a five year annuity. She deposited all of her inherited IRA funds which is 1.5 milllion. The guy told her he had been to ED’s classes. He obviously did not listen. This is why: She has three sons age 55, 45, 41. All named beneficiaries on this account. I think you already see the major problem..the RMD distribution will be on eldest with a fourteen year gap to the youngest. She is old world Italian and believes in family legacy. If I wait till this matures she will be to old to qualify for most products. At that point she will have to succumb to the renewal rate of her current policy and the problem for the heirs will still be there. I need some help and advice to bring to this lady. I do have a product that will take care of her surrender and also has afamily endowment rider that grows at the rate of 5% compounded every year which would secure her legacy. Again what I need is opinions from other professionals in the field to confirm my analysis. I would move the funds and restablish them in separate accounts evenly.Also since this was done a year ago this lady bought ED’s book and read it, she realizes some of the damage this agent did and of course he will not return any of her calls.
Permalink Submitted by Alan Spross on Tue, 2009-09-08 20:30
You indicated this IRA was inherited. Was it from a deceased spouse, and has she rolled it over or assumed ownership of the IRA? If so, the sons can create separate inherited IRA accounts after her death and use their own life expectancies for RMDs, dependent on the insurer options for the product itself. Creating 3 accounts prior to owner’s death will only provide assurance that the deadline date (12/31 of the year following year of owner’s death) for separate accounts after her death does not get overlooked.
If her current IRA was inherited from a non spouse OR a much younger spouse, then RMD implications differ from the above. Please clarify.
Finally, is this 5 year annuity held in a custodial account with the annuity payout being made into the IRA, and then she takes her cash RMD from the IRA?
Permalink Submitted by Linda Fedigan on Tue, 2009-09-08 21:10
She did inherit from her spouse and has taken custody of the IRA. She receives her RMDS straight from the holding annuity company. So you are saying that in this situation if this insurer has the provisions at her time of death the sons can each aquire separate accounts and their distribution will be calculated on thier own age not of eldest son?? What about the IF? Also what do you think about the family endowment account to insure a legacy?
Permalink Submitted by Alan Spross on Tue, 2009-09-08 21:41
Yes, but not knowing the details of this particular product, I cannot speak to what options the sons will have to continue the annuity or will be cashed out. But whatever funds they receive are subject to the separate account rules under which they can each use their own life expectancy. They cannot roll over the funds, so if they choose to change custodians, the check will have to be made out in the name of the new inherited IRA custodian, eg “Fidelity Investments Inherited IRA FBO Bill Smith, as beneficiary of Dorothy Smith”. The current insurer may not offer a direct TT transfer to a new inherited IRA custodian.
I cannot comment on Family Endowment accounts or if they are appropriate for an IRA account.
Al Fry works with annuities and perhaps he or someone else can comment further.
Permalink Submitted by Linda Fedigan on Tue, 2009-09-08 22:07
Thank you so much Alan for your help in this matter. As is all situations there are too many variables to consider. I just am sick and tired of these fly by night agents!! This poor lady needs help and to be left out in the cold is terrible. She told me he was at her house EVERY morning for breakfast till he received the funds …then after policy delivery not to be haerd from again. Her first year anniversary was in July. Her comment was “Stupid Man I have much more money to invest!” Live & Learn DAILY!!