IRA Beneficiary designation
In 2002 at age 82, my mother was diagnosed with altheizemers. A section 867 management trust was created by a Texas Probate Court and a bank was appointed to manage her estate . At the time (2002), my mother had a large IRA with Fidelity Investments and had designated my sister and I as beneficiaries on the IRA. After my mother passed away in 2009, I learned that during the ensuing years, the bank had moved the IRA from Fidelity to another firm. In doing so, the bank did not designate an IRA beneficiary. As a result of this action, I’ve learned that my sister and I are no longer considered to be the direct beneficiaries of the IRA and will not be able to take RMD based on our own life expectancies. I’ve been told that the beneficiary of the IRA is now my mother’s “estate”.
My mother did not make this choice. Can the bank make a change to the IRA without keeping the same beneficiaries? Can anything be done to correct this?
Permalink Submitted by Alan Spross on Sat, 2010-02-13 19:20
It is not clear whether the bank acted properly or not, but since the bank receives TX Court business they should be aware of their notification requirements and beneficiary options. I am not familiar at all with the TX trust and estate code. If the trust protected the IRA account, then it is possible that the state would have to be named as the beneficiary of the account after her death to recover their costs. Was your mother on Medicaid, and how were her costs being paid since 2002? Also at issue here is what your mother’s will specified since any remaining assets probably are in her estate.
Unless this beneficiary issue was mishandled, if there are any assets left in her IRA or estate and you are an estate beneficiary, the IRA balance could eventually be assigned to you as an estate beneficiary when the estate terminates, and your RMD would be based on your mother’s remaining life expectancy of about 5 years starting with the 2010 RMD.
Bruce Steiner can add much more to this if he sees this post.
Permalink Submitted by Gail Fisher on Sat, 2010-02-13 20:51
When the IRA was transferred from Fidelity, no beneficiary designation was made by the Bank. The state was not named beneficiary and had no costs to recover. My mother was never on Medicaid and all costs were paid out of her funds. In addition to the IRA, other funds were available in the Trust and were used to pay for her expenses since 2002. In addition to the original IRA naming my sister and I as beneficiaries, we were also named as beneficiaries in our mother’s will. By the way, the probate court was in Texas, but the bank used was in Colorado. The Tx probate court approved this.
Permalink Submitted by Alan Spross on Sat, 2010-02-13 21:37
Then it sounds like this was a control and/or simplification issue if you are still named in the will. You may have to hire legal help to get the answers. The first question being whether this was a clerical error, whether your mother had a hand in the decision or even knew about it, or was done for a good reason.
Naming an estate as IRA beneficiary is always bad for the IRA beneficiaries, but the courts still have some fiduciary responsibility to their clients, but not directly to the client’s beneficiaries.
Permalink Submitted by Bruce Steiner on Sun, 2010-02-14 15:48
Alan: thanks for the kind words.
A forum such as this can be useful for providing general information, but not for specific legal advice. The children should consult with their own attorney(s), who can give them specific legal advice based upon the particular facts and their objectives. They may want to discuss with their attorney(s) whether, given all of the facts, it may be possible to get a court order fixing this (and, if so, whether it would be respected for tax purposes); or if not, whether there may be a claim against someone for damages.