UTMA Bene Designation Not Allowed

Submitted by Niki Sturm on Mon, 2015-04-20 20:28

I am having trouble with a few investment companies accepting the UTMA designation wording for minor children as beneficiaries. Here is the response from one:

This is not an acceptable designation and they cannot process it this way. If we want to signify a minor as the Contingent Bene, and have a custodian, we signify the minor and supply the custodian with a notarized LOI naming them as the custodian and the terms (UTMA, etc).

And from another:

Cannot list cont benes this way. If the Client A want Custodian A to act as custodian for the boys, she needs a notarized Letter of Successor signifying her as this person. Then, if both owner and Primary pass away, she just presents the letter and it will stand. Fidelity doesn’t need any info on this. As it stands now, the boys names are listed as cont benes omitting Custodian A info.

So, if I am reading this correctly, my client needs to give a notarized letter to the person they signify as custodian and at the client death, the fund companies will allow that person to make claim on behalf of the minor children?

Any insight would be appreciated. Thanks!



Submitted by Bruce Steiner on Mon, 2015-04-20 21:40

Keep looking until you find a financial institution that will accept it.  Or, if the amount involved is sufficient to warrant administering trusts, leave the IRA to the beneficiaries in trust rather than outright.

Submitted by Jose Morales on Tue, 2015-04-21 00:01

Clarity in beneficiary designations is always critical from the point of view of the IRA Custodian.  They do not want any ambiguity or room for dispute which can then drag them into an ugly situation that they have no need to be a part of.  Without seeing the exact wording that may have been used in the requested beneficiary designation it is hard for anyone to really comment on whether the IRA Custodian is being reasonable or not.  I’m taking a guess from the two responses you posted that they do not in fact have an issue with the idea of having minor children potentially being the beneficiary of an IRA and the need to have an UTMA established in the event that this actually occurs, they just have their particular way of making this designation.  I’d turn the question around and ask why it is that this client needs to have his beneficiary designation for the minors set in the specific way that they have apparently asked of both these IRA Custodians?

Submitted by Niki Sturm on Tue, 2015-04-21 20:06

Wording is as follows:David Doe, as custodian for Jane Doe under the Michigan Uniform Transfers to Minors Act until age 21It was my impression in speaking with the fund companies that they have no problem listing a minor on the account as a beneficiary. However, since a minor cannot make claim, at owners death someone would have to submit documentation stating they are the custodian and make the claim. I have seen this done when a probate judge names a guardian and then the guardian makes claim on behalf of minor. However, we are trying to avoid probate thus the UTMA designation. It just seems counter intuitive to me that they would allow a notarized letter of instruction at the time of death vs. a signed beneficiary designation now? The cost of creating a trust with IRA conduit is not withhin the client’s budget at this time. 

Submitted by Jose Morales on Tue, 2015-04-21 20:43

Thank you for the additional information.  One suggestion, rearrange the verbiage on the bene designation to:  Jane Doe under the Michigan Uniform Transfers to Minors Act until age 21, David Doe as custodian.  Maybe even add (as a minor) after “Jane Doe.”  I have a feeling they will be much more receptive to that as a beneficiary designation.  You can send them a quick email with the proposed updated designation to see if it will work for them (and I really think it will).

Submitted by Niki Sturm on Mon, 2015-04-27 14:47

Unfortunately after much discussion with Fidelity and a few other investment companies, we have determined that naming the minor beneficiary with the UTMA designation will not be accepted. Basically they will only allow the minor to be named. So, we now are figuring out how to create this “notarized letter of custodian” that we can hold in our files for use if both parents pass away. I am skeptical that this will work but hopefully it will never be needed!

Submitted by Rick Blake on Mon, 2015-06-22 13:39

Thought this might be of interest as it is a related issue but dealing with now that ira owner passed:https://irahelp.com/forum-post/25038-benificiary-ira-wants-disclaim-minor-custodian-being-difficult

Submitted by Ben Meyer on Tue, 2015-06-23 03:49

The explanation for the seeming inflexibility probably lies in the computerized way this is now done.  Some high level administrator has probably decreed that the beneficiary can only be a name, either of a person, a trust, or a charity.  Management frequently doesn’t want low level employees to make decisions since they may create corporate commitments contrary to policy.  For many institutions, Fidelity included, ‘per stirpes’ is designated by checking or clicking a box.  Therefore, several issues can arise with children who may become beneficiaries.  They may be unborn at the time of the beneficiary designation; they may have reached majority by the time the account holder passes; the selected custodian may have been changed; or, importantly, a custodian for minor children may have been designated in the decedent’s will.  Therefore, if minor children become beneficiaries at the death of the account holder, the investment firm expects someone to come forward claiming to be the custodian of any minor beneficiaries.  At that time, the custodian presents his or her authority, which may be a notarized letter or appropriate court documents in the event that a custodian is designated by will, and assuming that the will has been probated.  Since all of these designations can be changed during the lifetime of the account holder, the institution doesn’t want to see anything until the account holder dies.  When a custodian is designated by will, the testator would most certainly not want to file the will with every bank or institution where there might be a potential custodial beneficiary.  So there is some good sense in a financial institution refusing to accept a designation of a custodian until the death occurs.  Also, in many states, a designation needs to be made to determine whether the custodianship lapses when the child reaches age 18, 21, or some age inbetween.  All these details make it difficult for an institution to handle, so they have often decided to wait until the unfortunate event occurs.

Submitted by Bruce Steiner on Wed, 2015-06-24 02:37

  • In most cases, avoiding probate isn’t worth the effort.  

 

  • However, avoiding guardianship is almost always worth the effort.

 

  • In any evant, IRAs pass in accordance with the beneficiary designation.  If the IRA custodian can’t handle this, move the IRA to one who can.  

 

  • I’m surprised that this is a problem.  While our clients generally provide for their children and grandchildren in trust rather than outright, if each beneficiary’s share of the IRA is too small to warrant administering a trust, we’ll usually leave the IRA outright, with a custodian under the Uniform Transfers to Minors Act for anyone under 21.  We name the person who is to be the custodian under the Uniform Transfers to Minors Act in the beneficiary designation form (or the rider to the form).  I don’t know how else to do it, and I certainly don’t want to have a guardianship.

 

  • Bruce Steiner, attorney, NYC, also admitted in NJ and FL

Submitted by Susan Radke-Sproull on Sun, 2021-03-28 23:19

If the IRA Custodian will accept it, naming the minor as the beneficiary and making sure the intended beneficiary custodian has an executed LOI in hand to give them seems like it would make the IRA beneficiary designation clearer, esp since it’s so hard to get an IRA Custodian to clarify how it will interpret the cryptic designations. E.g.: 1. If designation is, as I’ve often seen, “David Doe custodian for Jane Doe under the Michigan Uniform Transfers to Minor Act,” and David Doe predeceases IRA owner, will it be obvious that the intended beneficiary was Jane Doe or do I risk Jane losing her portion? Since IRA beneficiary distributions bypass probate, it may be that no one would ever know Jane Doe was even named in this case. 2. WRT the above, is it clear that if Jane Doe reaches her majority before the IRA owner dies that it just goes outright to Jane Doe and not to David Doe?3. Even if the designation is “Jane Doe under the Michigan Uniform Transfers to Minors Act, David Doe as custodian,” what happens if David Doe predeceases… the courts get involved to name a replacement? 4. If IRA owner lives in Washington and Jane Doe lived in Michigan at the time of the designation but moved to Texas right before IRA owner died, is Michigan still the right designation? It seems that a LOI could address all of these things: “If Jane Doe is a minor, then David Doe as custodian under the UTMA in effect in the state of residence (or whatever is correct here) and if David Doe predeceases or is not able to serve then the following in order: Sally Doe; Sam Major…” Thoughts?

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