Deceased has a $1 million IRA. Deceased had not made any beneficiary designation. Deceased was on ‘death bed’ from Sept 2016 to death on 1-13-17.

In mid December 2016, Deceased had to make his RMD for the year or face penalty. Deceased gave his custodian password/credentials to the Caregiver (a daughter) to handle. While making the distribution Caregiver changed the beneficiary designation to herself and Brother (leaving out two other siblings). This change was not authorized by the Deceased. Custodian sent a confirmation in early Jan 2017 about the change, but it was not received because Deceased was in a nursing home. Caregiver and Brother discovered the error on 1-16-17 (after death), and logged into the custodian account and changed the beneficiary designation to Caregiver, Brother, Brother 2, and Sister. The estate is about $1 million not including the IRA ($2 million total).

Assuming custodian discovers the change to the 4 sibling made after the date of death and fails to honor it (and therefore the beneficiary would be the Caregiver and Brother), what are our options:

Option #1: Caregiver and Brother take the IRA distribution and make it up to the other siblings as a nontaxable gift to them (which would reduce the lifetime estate exclusion to the Caregiver and Brother). This not practical for a host of reasons including litigation.

Option #2: Caregiver and Brother decline the distribution and the IRA goes to the estate. The IRAs are distributed to the estate and the estate pays income taxes on the distribution. The balance of the estate after estate income taxes is distributed equally to the four siblings pursuant to the will and is not taxed to the siblings individually. Will this work? Does the rule preventing an individual from declining an IRA distribution because they later receive an interest in the money apply here? If so, would a distribution of different specific assets (ie Cash from the IRA distribution (net of taxes) to Brother2 and Sister and the balance in cash or securities to Caregiver and Brother) to the siblings overcome this issue?

Option #3: Since the change in Beneficiary designation was an unauthorized error, can we force the custodian to not recognize the change in beneficiary made after Deceased’s death, and distribute to the estate pursuant to the designation existing pre death? Do we need to get an IRS ruling? If we need a ruling can we wait to distribute anything from the custodian until we receive that letter, even if it takes a year, or is there a deadline for distribution from the custodian after date of death?

>If we claimed that the Caregiver made the change as intentional and unauthorized does this change anything in Option #3 above? Does Caregiver face any legal charges.

>Caregiver and Brother are co-executors of the estate, however the 1st beneficiary change (in December) was to them individually. Does this change anything to Option 3 above.

Finally, can anyone recommend an attorney (ideally in the State of Iowa) that specializes in IRAs and has litigation experience and direct experience with IRS rulings. I need a legal opinion letter.

Thank you