Vanguard Inherited IRA – Probate Needed?
My late father had $150k in a Vanguard Traditional IRA at the time of his death early this year. He designated 50% of the amount to my mother and 50% to his “descendants, per stirpes”. After sending the inherited IRA forms to Vanguard created an inherited IRA for my mother. However Vanguard still wants a “Beneficiary Identification” form, which if I understand it correctly implies that an executor be appointed by the court, which necessitates going through probate.
My father owned every other asset of his in joint tenancy with my mother, so we have not yet touched the probate process and would prefer not to.
An estate/trust lawyer from whom I have sought advice (but not retained) said that we could try filling out a Small Estate Affidavit, signed and notarized by the nominated executor (my uncle) and my mother, designating my siblings and I as the sole descendants of my father. Since the inherited amount is less than $100k, he implied that this might work with Vanguard.
Has anyone been in a similar situation? If probate is unavoidable, what costs should we be looking at to inherit this $70k in California?
Thanks for your help. I live overseas and have not been able to get concrete, unbiased advice yet.
Permalink Submitted by Bruce Steiner on Thu, 2008-05-29 00:15
Vanguard’s concern is that they need some way to be sure who your father’s children are. The usual way is for the IRA owner’s executors to certify who they are. You might see if there is some other way to satisfy Vanguard’s concern.
Note that if all the assets pass to your mother as the surviving joint tenant, these assets will be included in your mother’s estate, and almost all of your father’s $2 million estate tax exempt amount will have be wasted.
Permalink Submitted by Alan Spross on Thu, 2008-05-29 00:48
I reviewed the form on Vanguard’s website and your conclusion is correct. The idea of the small estate CA affidavit process appears to be worth a try, since the probate estate is under 100k, and with no real estate the red tape will be less. See att’d link for preliminary information:
http://www.norcalprobate.com/CM/ProbateOverview/Estates-Under-100000.html
I believe that Vanguard no longer even accepts a per stirpes, per capita, or customized beneficiary designation, perhaps due to discontent resulting from the unexpected probate requirement. If there is any good news, the probate should not impair the ultimate designated beneficiary status of the identified beneficiaries through the process.
Permalink Submitted by Bruce Steiner on Thu, 2008-05-29 03:01
Like many financial institutions, it often takes a bit of work to get Vanguard to accept a customized beneficiary designation. The financial institution doesn’t want to be in the position of having to decide who the beneficiaries are. But providing for issue per stirpes is more common than not. For example, if an IRA owner has 3 children, A, B and C, chances are that if A dies first, or disclaims, that the IRA owner would want A’s 1/3 share to go to A’s children rather than for B and C to each get 1/2. That’s an example of “per stirpes.”
As previously noted, the financial institution doesn’t want to be in the position of having to decide who the beneficiaries are. Vanguard can’t possibly know the identity of the IRA owner’s children (or, in the above example, of A’s children if A dies first or disclaims).
The logical solution to provide that the financial institution can rely on the certification of the IRA owner’s executors. Other lawyers, or financial institutions, may come up with other solutions.