IRA change of ownership
Client age 76 is taking RMD’s from 2 separate IRA’s in fixed annuities. He also owns a NQ annuity with same carrier. September of 2015 client signs policy change form to make son age 50 the owner of all annuity contracts. Carrier changes ownership to son in spite of IRA endorsement on annuity contract that prohibits ownership changes. No RMD letter sent in 2016 since son is owner. In 2017 dad calls insurance carrier and says he never wanted son to own the IRA’s. Is there any recourse for the carrier to correct this IRA ownership error or is this a total taxable disbursement to the dad and a gift to the son?
Permalink Submitted by Alan - IRA critic on Wed, 2017-07-12 22:31
Client needs to call back and insist on talking to supervisory or higher staff of the IRA annuity custodian. This is blatant incompetence on custodians part that may or may not be addressed in the IRA agreement. Since such a change is in obvious conflict with the tax code, perhaps the custodian will simply redact the change in ownership with son’s written agreement. Otherwise, client will become subject to prohibited transaction rules under which either 50% or 100% of the IRA is considered distributed and taxable to the client. Therefore, if custodian will not redact the ownership change, client needs to hire legal counsel to protect his interests and transfer as much of the blame for this to the custodian as possible. A PLR is another possibility here if this cannot be resolved otherwise and the cost for that will be about 15k. I could not hazard a guess how this will end up, but it is potentially very costly. A copy of any forms submitted by client to the carrier will be important, if not critical.