Error when beneficiary Changed by Custodian

Submitted by Karl Wunderlich on Tue, 2024-01-30 19:02

I have a client with a problem that I’ve never encountered before in my career. he has some accounts with me and some accounts on the do it yourself variety through one of the national custodians. About 12 months ago the client and his spouse changed their beneficiaries on their IRAs with the do it yourself company, with the primary reading each other, and the contingent to their five siblings. The couple has no children. The couple did this in the custodians office with the employee who works at that office. They did all of the beneficiary changes online and the client was not given any printouts. They had some trouble when they were doing it in the office with system locking up and they were forced to start over several times. Eventually they thought it was all taken care of. Fast forward to this year and the spouse has passed away, and my client finds out that the whole IRA is payable to the five siblings named and nothing to him as spouse. The custodian is working on a solution, but so far have come up with nothing. they have told him that it’s possible that he will need to have the five siblings sign off as well as their children and grandchildren stating that they do not want to inherit the IRA. They’re still looking into other solutions and we’re hoping for a favorable outcome. My client was going through a stressful time for the whole past year with his wife’s declining health so I can certainly understand the stress he was under and not realizing that he should recheck this. Has anyone ever encountered something like this or what would your suggestions be to help him?



Submitted by Alan - IRA critic on Tue, 2024-01-30 19:41

  • The custodian may need some time to review any notes and to discuss this with the employee if that person still works there. Any change to the current beneficiaries on record will likely require a review from their legal Dept. 
  • If they won’t change the beneficiary and that’s likely, the 5 beneficiaries could disclaim the account up to 9 months from the DOD. The IRA agreement should be carefully checked ASAP to determine who the default beneficiary is should the others disclaim. While it could be the spouse, it is more likely to be the estate. If the disclaimers result in the estate as beneficiary, what does spouse’s will show as her beneficiary? If it names the surviving spouse, then the surviving spouse might be able to do a spousal rollover which has been allowed by several IRS letter rulings over the years. 
  • This is a reminder that all IRA owners should check their beneficiary designation at least once a year, more often if the IRA owner is in declining health.

Submitted by Bruce Steiner on Wed, 2024-01-31 20:57

  • I’m surprised that this hasn’t come up more often, though perhaps not enough time has passed since online IRA beneficiary designations became common for enough IRA owners to die with online beneficiary designations.
  • In addition to the loss of a document (even if just a scanned copy) with a signature, it’s difficult if not impossible to do a customized beneficiary designation online.
  • Bruce Steiner

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