Unauthorized Beneficiary Change

Submitted by Todd Martin on Tue, 2017-04-11 20:10

Have a client that passed away and has 1.8 million in a traditional IRA. He did have a defined benefit plan that he no longer wanted to contribute to. Prior to rolling in an IRA, the DB plan was the owner of the account and was the primary beneficiary per instructions for his then TPA. He spoke to the provider who instructed him to send in a letter of instruction requested his DB in the name of his company be switched to his personal IRA and that the DB would be terminated and assured him the account number, all his investments, and all the other particulars of the account would stay “the same”. Not mentioning anything about the beneficiaries. The client did as he was requested and the vendor changed over the ownership to his individual IRA.

During the process of filing the claim, it was discovered the vendor changed the primary beneficiary to “The Estate of” without a signed beneficiary change form or authorization from the client. They state they sent a letter to the client informing him of the change, but have yet to produce said document. Baring the spouse having to hire an attorney and spending tens of thousands of dollars on obtaining a private letter ruling from the IRS, does anybody else have any suggestions on how to get this money to the spouse without the tax consequences of “The Estate Of”? Additionally, the TPA of the DB plan has a signed beneficiary form showing the primary beneficiary of the DB plan was the spouse. Any suggestions on this dilemma are greatly appreciated.

Thank you,

T. C. Martin



Submitted by Alan - IRA critic on Tue, 2017-04-11 20:25

Is the surviving spouse the beneficiary under his will?  There have been numerous PLRs allowing the spouse to roll over an IRA distribution to their own IRA if they are sole beneficiary of the estate. Spouse would just need to find a custodian to accept such a rollover without asking for a new PLR. If the rollover is done the surviving spouse would be subject to their own age based RMDs. Did client pass after this RBD?

Submitted by Todd Martin on Wed, 2017-04-12 01:12

They have a trust and she is a successor trustee AND the full beneficiary of the trust upon his death.  So if the carrier refuses to change the beneficiary to his spouse, as he would have intended, and pays the 1.8 million dollars pre-tax account balance to “The Estate Of” are you requesting to utilize the 60 day rollover rule and see if we can find a custodian willing to accept those proceeds?  Or are you suggesting finding the custodian first, and see if they will transfer the money from the current IRA provider to the new custodian as an IRA for the spouses benefit?  

Submitted by Bruce Steiner on Thu, 2017-04-13 03:04

  • The IRA is different from the plan.  If he signed a beneficiary designation for the IRA, that would control.  If not, then you would look to see what the default is under the IRA agreement.  Depending on the custodian, it could be either the spouse or the estate.
  • If the estate is payable to a trust and the trust is payable to the spouse (why would anyone create such complexity?), then it should be possible to get the IRA to the spouse so she can do a rollover.  See my articles on this in the October 1997 issue of Estate Planning, http://kkwc.com/wp-content/uploads/2015/04/AR20050125164755.pdf , and in the June 2015 issue of Trusts & Estates, http://kkwc.com/wp-content/uploads/2015/08/IRA-Rollovers-Making-this-option-possible.pdf .

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