Getting mutual funds to agree to UTMA bene designation?
Hi everyone,
I am having what seems like a strange problem. I have minor children, and I have been naming them as secondary beneficiaries on my IRAs with an UTMA custodian using the MI UMTA statutory language (I live in Michigan). For example: “Robert Smith as custodian for (my kid)under the Michigan Uniform Transfers to Minors Act”.
The problem is that the mutual funds are now telling me that they will not accept my designations. It has happened with some pretty big funds: Vanguard, T Rowe Price, and Dodge & Cox. Their representatives tell me either that the funds cannot create accounts like this, or that UTMA language cannot be used on a beneficiary form. I was really surprised at their responses.
I am at a loss on how to get them to accept an UMTA beneficiary designation, or to create a work-around to still get the funds into the hands of UTMA custodians without court action in the event of my death. I have argued with them to no avail. Has anyone else encountered this, or have any advice?
Thanks in advance,
Bridget
Permalink Submitted by Alan - IRA critic on Wed, 2014-04-30 19:59
Did you read the “Minors” paragraph in the beneficiary clause in your Vanguard IRA agreement? It appears that the party responsible for the minor must prove that to VG, and pursuant to that the benefits could be paid to a custodial account (UTMA or UGMA) for the minor. The agreement would just show the name of the minor. IRA agreements must also conform to state law when applicable and such law would supercede the IRA agreement. It seems that assuming these custodians understand their own IRA agreements, they should be able to provide you with acceptable beneficiary wording should the minor inherit, which at least includes creation of custodial accounts when desired or required. The other two firms are also large enough to have specialists dealing with acceptable beneficiary designations. In other words, in some states these custodians will have no choice but to pay out the RMDs to custodial accounts without naming the custodial account specifically.