IRA Transfer from Annuity Company

Submitted by Kevin O'Hearn on Fri, 2024-11-08 15:45

Hello,

A client requested an IRA transfer from one annuity company to another annuity company. While the check was in transit the client passed away. The new carrier did not accept the check as the client had passed away and sent the proceeds back to the original carrier. The original carrier is not putting the funds back into the original contract as the client has passed away and wants to distribute the funds to the Estate, fully taxable and not to the non-spouse beneficiary or to the Estate as an IRA-BDA.

I am interested in hearing feedback on how the annuity company is treating this situation/distribution. Thank you.



Submitted by Alan - IRA critic on Fri, 2024-11-08 23:04

Was the check payable to the new life insurer (a direct transfer), issued prior to the time of death, and how did the new insurer know about the death before they received it?

Is the amount large enough to warrant litigation expense, if needed?

Is the non spouse beneficiary also the beneficiary under owner’s will?

Until this is resolved, I would not provide the first insurer with an estate EIN that might accelerate a distribution/1099R.

 

Submitted by Kevin O'Hearn on Tue, 2024-11-12 09:14

Thanks Alan. Here is some more information that I have gotten.

Per the sister, she is the sole beneficiary of decedent’s IRA and he did not have a will when he passed away.

 

His sister is his only sibling and parents have since passed away. The sister is meeting with a probate attorney this month to begin the probate process. Decedent owned a home and land that is valuable as well as a bank account.

Any feedback would be greatly appreciated. Thank you.

Submitted by Alan - IRA critic on Tue, 2024-11-12 10:41

Well, at least if the insurer will not restore the transfer check to the IRA, there will be considerable assets in the probate estate anyway, which will likely pass to the sister under the state intestate laws if the decedent has no living children.

With respect to the issued check, being a direct transfer check not accepted by the new insurer, apparently the first insurer closed the account upon issue of the check and refuses to restore the funds due mainly to inconvenience, even though a rejected transfer is not in itself a distribution. Perhaps sister can convince them to reconsider if she can provide evidence that she is the only estate beneficiary and reconsidering will therefore not present a legal exposure to the insurer from some other estate beneficiary. But in the end she will have to decide if the amount in question is large enough warrant the legal costs of hiring an attorney to take on the deep pocket insurance company. Until she determines her approach she should not provide the estate EIN to the insurance company to enable them to issue a distribution 1099R.

If the funds could be restored and the sister is not more than 10 years younger, she would be an EDB not subject to the 10 year rule. This would also avoid a large taxable distribution to the estate. Even if more than 10 years younger, 10 years is far preferable to a taxable lump sum distribution.

Another issue is whether decedent had completed his RMD before passing. If not, any distribution will be applied to the year of death RMD.

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