IRA beneficiary form lost by bank

Submitted by Annell Rogers on Mon, 2015-08-17 20:01

My 96 year old mother passed away in May. I am her only child and sole beneficiary of her estate. She left a valid will. However, at her death her only assets were four bank accounts and one IRA for which Chase Bank is the custodian. I was the joint owner of her four bank accounts so there was no need to probate her will. In 1998, she moved her IRA account from a credit union to Bank One in a trustee-to-trustee transfer. A few years later, Bank One was merged into Chase Bank. I was with my mother when she opened her IRA account at Bank One and I know for certain that she named me beneficiary of the IRA. However, when I notified Chase of her death I was told that they could find no record of a beneficiary designation for her IRA so her estate was automatically the beneficiary. I asked them to recheck their records (which are now on microfiche) and was again told they had no record of a beneficiary designation. Chase insists that I must probate her will in order to claim the IRA balance. Texas has a procedure called “Muniment of Title” which my attorney recommends and Chase agrees is acceptable. However, the attorney’s fee and the probate court filing fee would total $685. The balance in the IRA is just under $1,400 and my marginal tax rate is 25%. I would net about $365 from all of this. I have copies of the Bank One IRA Deposit Receipt and the IRA Election of Payment by Participant forms that my mother signed to open the account. Neither provides a space for naming a beneficiary. Chase has refused my request for copies of all documents in their files relating to the opening of the IRA. They refuse to tell me if they have any such records. Is there anything further I can do to force Chase to cooperate. Assuming not, I am considering two options. If I simply drop the matter with Chase, I believe they will eventually have to escheat the balance in the IRA to the state of Texas. It appears I could then claim it by filing an Affidavit of Heirship. Another idea I am considering is letting the IRA transfer to the estate and them using all the funds to pay her funeral expenses. I would still incur the expense of probating the estate, but would there still be tax on the IRA distribution to be paid by the estate? Do either of these approaches make sense? Or, do you have other ideas as to how I might best proceed? Thank you for considering my question.



Submitted by Alan - IRA critic on Mon, 2015-08-17 22:17

  • You have already done some research, and now it boils down to the value you place on your time and this small taxable benefit. Sounds like other than this IRA you have no need to probate the will or to open an estate bank account. I think I would drop it unless there was a chance to discover a beneficiary designation on the account. By the way, in some sense it was fortunate that the balance is minimal because having this occur with a high balance account would be maddening, and loss of beneficiary designations has been a problem nationwide and worsened during bank mergers or automation updating.  Proving the a designation existed originally would not be conclusive anyway since Chase will take the position along with their army of lawyers that your mother could have changed it at anytime. However, many IRA custodians in recent years have been providing annual notices to IRA owners of their beneficiary on file. Have you been handling her mail or searched her records to be sure she did not file a  recent such notificiation away somewhere? Finally, with respect to her final year of death RMD, the beneficiary (estate) is responsible for completing it, but if you let it escheat to the state, there is minimal chance the IRS will follow up.
  • Estate income tax rates are high, but if you have the IRA distributed to the estate, and there is no other taxable income, because of the small taxable amount the estate would probably pay a lower tax than if the IRA was passed to you as an inherited IRA and was distributed at your individual tax rate. Either way, there would not be much left after the fees you mentioned.

 

Submitted by Annell Rogers on Wed, 2015-08-26 14:13

Thanks for answering my earlier question.  I learned that Texas Probate would allow me to make a pro se an application for probate of the will as a muniment of title because I am the sole beneficiary of the estate.  I filed yesterday and hearing with the probate judge is set in a couple of weeks.  In the second bullet point of your reply to my previous question, you addressed  tax considerations.  I would like to have the entire remaining balance in the IRA taxed at the lowest rate possible.  My mother had very little taxable income in 2015 prior to her death.  No RMD had been yet been taken for 2015, but even with that she would owe no income tax.  Chase has indicated that they are willing to make a final distribution of the balance in the IRA either to the estate or directly to me.  Estate tax is definitely not an issue.  So, I think my choice should be to have the final distribution made to the estate.  I presume I will need to file a tax return for the estate, but that with only income of $1,398 there will be no tax due.  Then, I think I can finally transfer the $1,398 from the Estate Bank account to myself free of any taxable income.  I am correct? 

Submitted by Alan - IRA critic on Wed, 2015-08-26 17:31

  • If the distribution is made directly to you, perhaps the gross income to the estate would be under $600, and you would avoid the cost and hassle of filing a 1041. Since the IRA is so small, the cost of filing the 1041 may be a larger expense than the taxes due. If the distribution is made directly to you and not to the estate, you would owe taxes at your marginal rate in the amount of the IRA, but perhaps eliminate the need for a 1041. If made to the estate, then you will have to file the 1041. Could you do this yourself or would you have to use a professional preparer?
  • Note that your mother’s final return (if needed) would not include any IRA distributions made after her death regardless of the payee. A total distribution would be reported to the payee (you if check made out to you or estate EIN if payable to the estate). If the IRA is distributed to the estate, perhaps the $600 exemption on the 1041 would reduce the estate taxable income and the amount passed through the estate to you by $600 and that would lower your tax. Tax might be even lower if the estate paid it and then passed the remainder to you tax free. But with such small amounts here, eliminating the hassle and costs of the 1041 might be the best decision due to less work and less total cost including taxes. Gets down to whether you can eliminate the 1041 and if not who will prepare it.

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