Custodian responsibilty
Have a new client. His spouse died in 2006. Her minor child was named as beneficiary of her IRA at a local credit union. The credit union made a complete disposition to the child in January 2007. The CU IRA plan document contains the language in form 5305 and then adds later about death:
“if the beneficiary does not provide (XYZ credit union) instructions regarding distribution of the IRA funds, the entire balance will be distributed no later than December 1 of the year following the owner’s death.”
I assume they sent a letter to the child. The father does not remember seeing anything. How much fiduciary duty does the custodian have in actually doing what is in the best interest of the beneficiary? A phone call? The child had a savings account at the CU and they dumped the net after a 10% withholding there. Too late to do anything? – Thanks.
Permalink Submitted by Alan Spross on Sat, 2008-05-03 19:26
It all depends on whether they violated any terms in their IRA agreement. While the agreement terms may not be beneficial to the child, they are not likely to violate any IRS or banking regulation.
However, there may be a case here since January is so much earlier than the date their agreement indicated to be the “no later than” date. They have effectively denied the child the benefit of stretching distributions over several decades. There may also be a special clause in the agreement dealing with minor beneficiaries in particular since state law dictates how the fiduciary duties should be set up for a minor’s assets.
In any event, the first step is to read the agreement in detail. Obviously, the amount of the account has a huge bearing on the stakes involved here. Some actions on the part of IRA custodians reflects that fact they don’t like wasting assets with administrative costs, and an inherited non spouse IRA where an extremely small annual RMD applies with no possibility of contributions fits that description to a tee. But if that’s what this CU is about, their agreement needs to reflect it and should potentially cost the CU some IRA business.
Permalink Submitted by Fred Burke on Sat, 2008-05-03 19:41
Thanks for the reply. I didn’t see any special clause about minors (pdf search). At this point I’m just hoping they will do the right thing and correct is some kind of administrative error. Maybe they violated a self-dealing thing by transferring it to one of there own low interest paying accounts instead of issuing a check.