Beneficiary Designation Error by Brokerage House
Taxpayer moved traditional IRA from Brokerage House #1 to Brokerage House #2 in 2010. Somehow during the transfer of the taxpayer’s IRA from BH#1 to BH#2 the beneficiary designation was changed from the taxpayer’s spouse (BH#1) to his estate (BH#2) which pours into a trust. The beneficiary change was not initiated by the taxpayer and was not discovered until the taxpayer died in 2012 after his RBD. Thus the spousal IRA stretch benefits will be lost and replaced with the 5 year rule if this cannot be rectified.
What type of administrative relief, if any, might the IRS grant to allow the beneficiary to remain the taxpayer’s spouse instead of his estate as incorrectly designated by BH#2? Is this done through a Private Letter Ruling?
Permalink Submitted by Bruce Steiner on Thu, 2012-07-26 15:55
It’s hard to see how an IRA owner could make or change a beneficiary designation without signing it (or “signing” it electronically). You might look at the beneficiary designation form to see whether it was in fact signed by the IRA owner. If not, then it might not be valid.
Perhaps, though, the IRA owner moved the IRA from broker 1 to broker 2 and failed to designate a beneficiary for the new IRA at broker 2. In that case, it would go in accordance with the default rules of broker 2’s IRA agreement. Depending on the financial institution, the default could be the spouse or the estate. From your question, presumably it’s the estate.
If that’s the case, then depending upon the terms of the trust, it may still be possible to get the IRA to the spouse who can then roll it over. For more details, see my article on this subject in the October 1997 issue of Estate Planning: http://www.kkwc.com/docs/AR20050125164755.pdf . The article is still current — if anything, the IRS is more liberal on this now.
If a private letter ruling is appropriate, we’ve obtained them in similar situations.