IRA Beneficiary distribution
My sister’s late husband had a traditional IRA with Morgan Stanley, and left a beneficiary form showing 3 primary beneficiaries: my sister to receive 90% and his 2 kids from his first marriage to each receive 5%.
The two kids refuse to complete and return the distribution forms to Morgan Stanley as they have had no communications with they father in many years and feel the money should have gone to the first wife.
Morgan Stanley says their policy is that they can not distribute the money until all 3 parties submit the forms. They also mentioned that since the money is invested in funds, they can not pay out 90% because the value of the portion for the 2 kids might be higher or lower when they take their distribution, so it might not be 5% of the original amount.
This has now been 9 months with no help and or real answers to resolve this from Morgan Stanley.
My questions: Is this true of all banks? what if there were 20 beneficiaries? Do you have to wait for 20 forms? What if the kids never sign? Are there provision in the tax codes for this or a time limit? ideas? suggestions?
Thanks very much.
Permalink Submitted by Alan - IRA critic on Wed, 2013-09-11 21:42
Distribution accounting is different than simply creating separate inherited IRA accounts. The other beneficiaries did not inherit based on the original amount, they inherited 5% each of whatever the account is worth on the day of any distribution or separate account creation. A large firm like MS must have an accounting platform than can handle this. You might check the IRA agreement to determine if any of these retrictions are included. If not, elevate the discussion in MS to a higher authority since the explanation regarding the 5% of the original amount is flat wrong and reflects lack of traning. There is no way that your sister should be held hostage by other beneficiaries she has no influence with over issues that could drag on for a long time. All she needs is a separate inherited IRA account that would contain 90% of the shares on the date of transfer. Fortuneately, since she is presumably the oldest beneficiary, if separate accounts are not created by the deadline, her RMD will not change but the kids will go up because they will have to use her life expectancy. Finally, note that a taxable distribution is different than a non taxable transfer. Your sister might ask MS what the IRS will say if she tells them she is not being allowed to take her RMD!!