IRA Beneficiary Form Mistake
An IRA owner died and the custodian has in their system the “estate” as the beneficiary because they originally couldn’t fit the entire beneficiary information in their computer system. The beneficiary was supposed to be the children and the children of the deceased (the supposed beneficiaries) have a copy of the signed beneficiary form and the custodian has a copy of it also! The custodian is saying that the estate is the beneficiary because that is what is in their computer system. This seems like complete garbage to me so I am asking the question…what takes precedent in a case like this – what the custodian has in their computer system, or what the actual paper document says the beneficiary should be?
As a follow up question, what if the IRA owner signed a new beneficiary form but never sent it in? What takes precedent?
Thank you!
Permalink Submitted by Alan Spross on Wed, 2010-12-22 23:32
Perhaps this custodian should not be dealing in IRAs if their system cannot handle beneficiaries in a proper way. No doubt that many processing platforms cannot handle long and complex beneficiary designations, but then they need to substitute a manual work around to refer their system to a paper file or have some other way of acceptably handling this. Showing “the estate” completely changes the intent of even having a designated beneficiary.
This discussion needs to be elevated to the officer level of this firm, and if they do not correct their system, legal representation will be needed.
On the other hand, if they allege that they never received the beneficiary form, a different problem exists. Most agreements state that the beneficiary on the IRA is not changed until they actually receive the documentation and that could even cause a potential problem if IRA owner died between the postmark date and receipt at the custodian.
And if they never sent it in at all, then they are out of luck and would likely end up with the estate as the default beneficiary.
If it can be established that the custodian recieved the form, but someone showed the estate as some sort of work around to their system shortcomings, then discussion with an officer should resolve the issue. It might come down to the immediate family all signing off on this as well. Custodians just want to avoid getting entangled in a lawsuit, but having an inadequate system to support beneficiaries is a huge invitation to continued legal costs for everyone.
We do not emphasize it enough: IRA owners need to re confirm their beneficiaries annually because some strange things happen in custodian computer systems during account transfers, change of clearing firms etc.
Am curious – what sort of firm is this….bank, CU, mutual fund co, broker?
Permalink Submitted by Jose Morales on Thu, 2010-12-23 01:23
I would start out by getting a clear explanation of why they feel they must stick to what is on their system when both the beneficiaries and the custodian have the actual paperwork that clearly shows a beneficiary designation of the children. Where did the explanation of the estate being listed as the beneficiary because the requested beneficiary designation “couldn’t fit” come from? If the custodian provided this explanation then my first question is even more relevant. I’m having a very hard time understanding why if everyone is in agreement that the documents show the siblings as the beneficiaries, and they weren’t listed because of a system limitation, this is even an issue.
Was there a dispute about the beneficiary designation at account opening? I can tell you that I have seen some attempts at ridiculously complicated beneficiary designations that we would not accept where the client walked away with the feeling that we had to accept whatever instructions they gave us. We let these people know that if we did not receive an acceptable beneficiary designation the estate would be the default, but they firmly believed that this wouldn’t be the case when push comes to shove.
Permalink Submitted by Denise Appleby on Fri, 2010-12-24 22:40
I would not worry about this at all. You are just talking to the wrong person. If the form says that the children are the beneficiaries, the fact that the information could not fit on the system does not change that. Just ask to speak with a supervisor, escalate it if necessary.
Permalink Submitted by Jonathan Sard on Sat, 2010-12-25 02:03
Thanks Denise. They have escalated it to as high as they think they can get. Although I think they could escalate it much higher, they just don’t want to deal with this issue any longer. The person they had been dealing with in the IRA department said that their outside legal council specifically said to go by what is in their system. I really can’t believe this firm is handling things this way.
Permalink Submitted by Denise Appleby on Sat, 2010-12-25 02:53
That is unacceptable. When you can, please call me: 973-313-9877
Permalink Submitted by Bruce Steiner on Sun, 2010-12-26 14:38
This doesn’t make sense. We often fill in “see attached rider” and then attach a rider that’s one or two pages long. The custodian has an interest (as do we) in making sure that the beneficiary designation is not ambiguous.
I would think that once the attorney handling the estate contacted the custodian, or if necessary contacted the custodian’s attorney, they would resolve the matter.
Permalink Submitted by Jose Morales on Wed, 2010-12-29 19:14
I still haven’t seen an answer to my question regarding any possible dispute concerning what the IRA owner wanted to list as a beneficiary selection. I bring this up because of several past experiences with unacceptable beneficiary designations we have received in the past that were rejected. In one instance a person had so many conditions, exceptions, and ambiguities that there is no way we would ever accept it as a beneficiary designation. The only way I could see this person’s wishes being carried out upon their death would be by establishing a trust and having the trustee sort through their maze of directions.
Permalink Submitted by Bruce Steiner on Wed, 2010-12-29 19:24
Leaving the IRA to “a trust” is not necessarily a solution to a complicated beneficiary designation. If you want to leave your IRA, for example, 1/2 in trust for A and 1/2 in trust for B, there’s no reason to have the trustee divide it, when you could name A’s trust as the beneficiary of 1/2 and B’s trust as the beneficiary of 1/2 (with whatever provisions you want in case A or B predeceases the IRA owner).
I think the financial institution should merely date-stamp and file beneficiary designations, and not comment on them. Then, when the IRA owner dies, if it’s not clear who gets what, the financial institution should wait until all of the possible takers have signed off, or there is a court order. But I know that’s not the way it works. The fincancial institutions try to catch the ambiguities when they receive the forms. But sometimes the financial institutions want modifications that create ambiguities. The staff people at the financial institutions are not necessarily lawyers, and are not as precise as we would be in our drafting.
Complexity doesn’t necessarily create ambiguity. Often complexity avoids ambiguity. Going back to my example, 1/2 to A’s trust and 1/2 to B’s trust, you would want to add the complexity of what happens if A or B predeceases the IRA owner. You might also want to add the complexity of what happens if neither A nor B nor any issue of B survive the IRA owner.
We don’t know the facts of the original poster’s situation. Perhaps the attorney handling the estate will be able to deal with someone higher up at the financial institution. If that fails, perhaps the attorney will be able to get a court order accomplishing the desired result.