IRA Beneficiary Dilemma
My client died and left her AXA annuity IRA to her 2 stepsons. However, the instructions in Feb, 2011 to change the bene to these stepsons were not put into place because the biological son who requested did not provide a current dated POA to act on his Alzheimers mom’s behalf. AXA sent a notice to fix POA but it was not received or acted on.
Mom died yesterday and I have found out that AXA rejected the 02/11 change request and reverted Bene Designation back to my old firm RBC as IRA Custodian. I am at Ameriprise and the old RBC account is closed. AXA said that because there is no RBC account there is therefore no Bene on file and the line of succession demands that the money go to the surviving spouse (none, he died) then to natural children (the biological son). The stepsons will feel ripped off by the bio son even though he would be willing to direct the money to them. Can the bio-son do anything in his capacity of executor to remedy this problem without ill-effect?
Permalink Submitted by Alan - IRA critic on Tue, 2013-05-21 19:27
It sounds like your client signed the original AXA IRA agreement forms naming the biological son beneficiary and AXA considered the IRA to be valid. If so, why did they determine that their default beneficiary provisions applied, even though the biological son is the designated beneficiary either way? Seems like a strange fact pattern. In any event, the son apparently had plenty of time to act and just procrastinated. If client had a will naming the stepsons, the son could disclaim and the death benefits would be subject to probate and the stepsons would receive the IRA as will beneficiaries, although their stretch would be limited. Alternatively, the son could receive the benefits and gift a tax adjusted amount to the step sons each year, and this would preserve the stretch. A 709 would be required if the annual gifts exceeded the gift exclusion, currently 14k. This is cumbersome since it could go on for years, but avoids legal fees with an uncertain outcome. Finally, if the IRA is large enough, since they all agree it may be worth the cost to check with an estate attorney to determine if it is possible to revise the will post mortem.
Permalink Submitted by Bruce Steiner on Tue, 2013-05-21 21:31
It’s hard to tell from this exactly what the facts are. If the attorney handling the estate is not comfortable dealing with this, he/she should bring in co-counsel more experienced in dealing with disclaimers and retirement benefits.Bruce Steiner, attorney, NYC, also admitted in NJ and FL
Permalink Submitted by Kenneth Johnston on Tue, 2013-05-21 21:43
Thanks for your comment, but you need to know that the original beneficiary on RBC’s records were the 2 stepsons. At RBC, an IRA annuity is set up by naming RBC as the Custodial Owner and the benficiary is listed as “RBC IRA Custodian“. This designation is then backed up in the RBC account documentation on file at RBC where it lists the beneficial owner (the mother, now deceased) and the 2 stepsons (as beneficiary of the RBC IRA account).When I (the advisor) changed firms, I had the POA sign forms to change the IRA annuity to the mother as direct owner and the 2 stepsons as named beneficiaries. However, since the beneficary request was not made because of a non-current POA authority, AXA kept the old RBC as beneficiary designation. Since the RBC account is long since closed AXA now say there is NO beneficiary and will only pay according to a probate line of succession.The original intent for this IRA was always to pay to the stepsons and was held apart from other IRA assets that go to the bio-son. If this helps give me a better answer than what you have already provided please let me know.
Permalink Submitted by Bruce Steiner on Tue, 2013-05-21 22:05
It’s often difficult to deal with insurance companies with regard to annuities (even if it’s easy to deal with the same insurance company regarding life insurance). If the attorney handling the estate (or separate counsel for the stepsons) can’t get this resolved, then he/she may wish to consider bringing a court proceeding if the stepsons can show that they are in fact the named beneficiaries of the IRA at RBC. The other possibility, as Alan suggested, is for the son to make gifts to the stepsons, either all at once or over a number of years, to shift the appropriate value to the stepsons.
Permalink Submitted by Alan - IRA critic on Tue, 2013-05-21 23:11
Sounds like client’s will beneficiary is the biological son or perhaps he is the intestate beneficiary under state law. That does not change the prior possible approaches, but could add another possible approach to investigate, ie if AXA accepted the POA to open the IRA annuity in mother’s name, how could that same POA not be valid for establishing the beneficiary? Seems like they should have revoked or closed the IRA if there was a problem with the POA under AXA’s requirements. Of course, AXA can claim that the son had 2 years to straighten things out, and did not. Has biological son offered to waive all claims and hold AXA harmless if they will accept his POA that allowed him to open the account to also accept his original beneficiary designation? Is the account large enough to sink some money into legal fees, although the son obviously does not want to pay for other people’s benefit.
Permalink Submitted by Kenneth Johnston on Wed, 2013-05-22 17:24
The original IRA beneficiary on the RBC IRA account records were the stepsons. The problem with the outdated POA came when the agent moved his practice to Ameriprise and changed the annuity registration from RBC as Owner to the individual person (mother) named as owner. At the same time the beneficiaries were changed from the RBC IRA Account as beneficiciary to the individual persons (stepsons) named as beneficiaries. However, AXA contends that the POA was invalid and because the RBC IRA Account is closed that there is NO beneficiary and thus has to be the “estate“. However, it has been suggested by other sources that in this case the Personal Rep of the estate probate this IRA and request his lawyer to write up a “estate pass through” letter to get the AXA money to the stepsons without other delays caused by probating the rest of her estate. This sounds like the answer I can go with and of course the bio-son would hold harmless AXA if the pass-through letter requested as much on this $106,000 annuity but I think that the bio-son as Pers Rep would be able to direct AXA to simply transfer money without it. Do you concur?
Permalink Submitted by Alan - IRA critic on Wed, 2013-05-22 21:02
Not unless the stepsons are the beneficiaries under client’s will. So far you have not indicated if there was a will or who the will beneficiaries are. Personal Rep must carry out the will requirements in accord with state law. An IRA can be assigned to the will beneficiaries, but not to other parties unless state law includes circumstances under which the will can be amended post mortem other than through disclaimers.
Permalink Submitted by Bruce Steiner on Wed, 2013-05-22 23:21
You can’t probate an IRA. You can only probate a Will. From the discussion thus far, you might suggest they consult with tax/estates counsel.Bruce Steiner, attorney, NYC, also admitted in NJ and FL