IRA custodian refusing to distribute IRA until all beneficiaries agree on the distribution/division of assets

Submitted by Mary Schmitt on Mon, 2022-11-07 16:57

Mother passed away in March 2022 and left her traditional IRA to five beneficiaries. The custodian is refusing to distribute the IRA (or allow the beneficiaries to open an Inherited IRA account) until all five individuals have signed a document the custodian calls an Asset Split Summary outlining the distribution percentages/amounts and includes the language “By signing below, I hereby (1) certify that I have fully reviewed this entire document, and (2) agree to the division of assets reflected above.” The custodian said one of the beneficiaries has not yet signed the document. To my knowledge, there is no court order or anything like that prohibiting the custodian from distributing the IRA to the individuals who have already signed the document. Is the custodian allowed to do this? If so, how long can they do this? An RMD must be taken by December 31. Thanks for your help.



Submitted by Alan - IRA critic on Mon, 2022-11-07 17:26

  • Some custodians have this requirement that makes it somewhat easier for them by creating separate inherited IRA accounts simultaneously, and most of the time it is not disclosed to the IRA owner in the IRA agrement. This is very irritating for the other beneficiaries. Moreover, it is not clear that holding all beneficiaries hostage due to one procrastinating beneficiary will legally hold up if challenged. The more beneficiaries there are, the greater the odds that at least one of them will cause a problem for the others. Is this custodian a bank?  
  • These beneficiaries will get their accounts much sooner if they can get the problem beneficiary to return the needed forms, despite the irritation all around. If they do not, the RMD may be late and while the IRS will waive the penalty, they will all have to file a 5329 requesting the penalty waiver, and the late RMDs combined with the current year beneficiary RMD (or even the incompleted year of death (2022) RMD for the decedent), may result in a higher marginal tax rate in the year all these RMDs are distributed. 
  • If mother passed prior to her RBD, there will be no annual beneficiary RMDs or a year of death RMD. The 10 year rule would apply, but there would be no 5329 needed for the first 9 years. Despite that, other beneficiaries may want to take a distribution for other reasons, and they cannot if the custodian keep a freeze on the account until all the forms are submitted. 
  • The custodian may just be bluffing and may back down if pressure is applied. It is worth a try. If the custodian does not relent, time to transfer that pressure to the beneficiary.

Submitted by Mary Schmitt on Mon, 2022-11-07 19:25

  • The custodian is Morgan Stanley. She died after her RBD. It’s perplexing to me that such a big company is handling this in such a manner. Thanks for the insight and advice!

Submitted by Alan - IRA critic on Mon, 2022-11-07 19:56

  • Yes, not what I expected. Still, if the beneficiaries complain enough they might find that this request is actually optional and/or negotiable, and MS might relent. It should not be difficult to simply transfer the beneficiary portions of the account into 4 separate inherited IRAs, leaving only that one beneficiary’s share in the current account until that beneficiary supplies the needed info.
  • Other than completion of the year of death RMD, which can be distributed in any combination between the beneficiaries, the actual beneficiary RMDs due in years 1-9 of the 10 year rule can be delayed for another year, late in 2023. If separate inherited IRAs are not established prior to year end 2023, those annual RMDs would have to be based on the age of the oldest beneficiary. That said, if 4 separate inherited IRAs are established by then, then all of the beneficiaries should be able to use their own age, since there will actually be 5 separate accounts after the interest of 4 beneficiaries are transferred out to new inherited accounts.

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