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Beneficiary change on IRA without owner's consent


Guest FAB
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I have just been contacted by a client who is named as one of several beneficiaries in a recently deceased woman's estate. Apparently, the woman had an IRA with Wachovia and when she set up the IRA was told that if she did not name a beneficiary, the beneficiary would be her estate. She did not name a beneficiary, but after her death, Wachovia now advises that since the date she began her IRA with them, they have changed their rules and now her IRA will not go to her estate, but to her spouse, or if she has no spouse to her children. This woman's will was drafted wth the intention of disinheriting her son and yet now, it appears from what Wachovia is saying, that he is entitled to receive her IRA. Has anyone else dealt with this issue? Any ideas?

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Have you read the Wachovia Custodial Agreement? See page 25, item 8, "Amendment". https://www.wachovia.com/common_files/Tradi...Disclosures.pdf

Unless you can show that the agreement in place at the time she opened the IRA didn't have such a clause, then by continuing her IRA at Wachovia, she implicitly agreed to the change.

The lesson learned is always complete a BDF even if it's to do what the current default is.

Kurt Vonnegut: 'To be is to do'-Socrates 'To do is to be'-Jean-Paul Sartre 'Do be do be do'-Frank Sinatra

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One wonders how radically the IRA agreement had been changed since the IRA was opened. Did it not call for the depositer to specify a beneficiary? Is it certain that the default order was not spouse, then children, then estate all along?

One wonders if the depositer received some sort of notification from Wachovia if there was a change in the default beneficiary provisions.

Seems to be too late now, but if the person was really determined to keep her son from getting anything, she should probably have made sure to designate one or more beneficiaries, to keep conflicting default rules from applying.

Not being a lawyer, I would be surprised if the heirs have any realistic shot at legal recourse against Wachovia.

Disinherited her son! Alas, that it should have come to that!

Always check with your actuary first!

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I have just been contacted by a client who is named as one of several beneficiaries in a recently deceased woman's estate. Apparently, the woman had an IRA with Wachovia and when she set up the IRA was told that if she did not name a beneficiary, the beneficiary would be her estate. She did not name a beneficiary, but after her death, Wachovia now advises that since the date she began her IRA with them, they have changed their rules and now her IRA will not go to her estate, but to her spouse, or if she has no spouse to her children. This woman's will was drafted wth the intention of disinheriting her son and yet now, it appears from what Wachovia is saying, that he is entitled to receive her IRA. Has anyone else dealt with this issue? Any ideas?

If you read the custodial agrement you will find out that the custodian retains the right to amend the agreement at any time. Also most custodians require the IRA owner to designate a beneficary at the time the account is opened.

mjb

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I have just been contacted by a client who is named as one of several beneficiaries in a recently deceased woman's estate. Apparently, the woman had an IRA with Wachovia and when she set up the IRA was told that if she did not name a beneficiary, the beneficiary would be her estate. She did not name a beneficiary, but after her death, Wachovia now advises that since the date she began her IRA with them, they have changed their rules and now her IRA will not go to her estate, but to her spouse, or if she has no spouse to her children. This woman's will was drafted wth the intention of disinheriting her son and yet now, it appears from what Wachovia is saying, that he is entitled to receive her IRA. Has anyone else dealt with this issue? Any ideas?

If you read the custodial agrement you will find out that the custodian retains the right to amend the agreement at any time. Also most custodians require the IRA owner to designate a beneficary at the time the account is opened.

Yes, I read their agreement which states that they have the right to make changes. However, I thought such a right could only be exercised upon notice to the owner of the IRA. They claim notice was given, but have not provided evidence of same. There was nothing in the home of the decedent to indicate that she ever received such notice. If she had, she would have contacted them and given specific instructions regarding a beneficiary.

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One wonders how radically the IRA agreement had been changed since the IRA was opened. Did it not call for the depositer to specify a beneficiary? Is it certain that the default order was not spouse, then children, then estate all along?

One wonders if the depositer received some sort of notification from Wachovia if there was a change in the default beneficiary provisions.

Seems to be too late now, but if the person was really determined to keep her son from getting anything, she should probably have made sure to designate one or more beneficiaries, to keep conflicting default rules from applying.

Not being a lawyer, I would be surprised if the heirs have any realistic shot at legal recourse against Wachovia.

Disinherited her son! Alas, that it should have come to that!

On the fac eof it, it was not a radical change. They simply changed their policy to state that the IRA would go to the spouse and then children, instead of the estate. My guess is that this is how the majority of folks would want it. However, should your spouse be deceased and your child, or children be estranged, addicted, or disabled, automatically giving them money may not be what you intended. There is not evidence in the decedent's belongings to show that she was notifed of the change, but there is also no proof that she might not have disposed of such a notice.

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Yes, I read their agreement which states that they have the right to make changes. However, I thought such a right could only be exercised upon notice to the owner of the IRA. They claim notice was given, but have not provided evidence of same. There was nothing in the home of the decedent to indicate that she ever received such notice. If she had, she would have contacted them and given specific instructions regarding a beneficiary.

Maybe she threw the notice out without reading it because it was enclosed with some routine informaton such as a statement and she thought it was some kind of advertising or maybe she forgot that she didnt designate a beneficary when she opened the IRA account so she disregared the notice. In any event there is no beneficary desigation on file.

Given the nature of the dispute the bank will probably not make any payments under the IRA and until the heirs resolve the dispute among themselves or sue the bank in which case the bank will pay the IRA account into the court and ask to be removed from the case.

mjb

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Yes, I read their agreement which states that they have the right to make changes. However, I thought such a right could only be exercised upon notice to the owner of the IRA. They claim notice was given, but have not provided evidence of same. There was nothing in the home of the decedent to indicate that she ever received such notice. If she had, she would have contacted them and given specific instructions regarding a beneficiary.

Maybe she threw the notice out without reading it because it was enclosed with some routine informaton such as a statement and she thought it was some kind of advertising or maybe she forgot that she didnt designate a beneficary when she opened the IRA account so she disregared the notice. In any event there is no beneficary desigation on file.

Given the nature of the dispute the bank will probably not make any payments under the IRA and until the heirs resolve the dispute among themselves or sue the bank in which case the bank will pay the IRA account into the court and ask to be removed from the case.

Thanks for the input. I posted hoping that someone else had experienced similar problems with IRA beneficiries being determined by the holder, as opposed to the owner. It would seem that no bank, securities company, or other holder of an IRA could unilaterally decide to change its policies without insuring that the owner was aware of the change; perhaps, a law is needed to state that no change can be made without the written consent of the owner. When you think about it, most states intestacy laws provide for family protection, but if a person has a will and has not designated a beneficiary on their IRA, shouldn't their Will control the disposition of their assets, including the IRA?

Hopefully, someone on this blog will have had a similar experience and have a solution. Unfortunately, I suspect that you are correct in saying that the IRA proceeds will probably be placed in the court's hands to determine the appropriate outcome in this case.

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It would seem that no bank, securities company, or other holder of an IRA could unilaterally decide to change its policies without insuring that the owner was aware of the change

You seriously overestimate what constitutes notice of a change. I get a little pamphlet from my IRA company every year or three that contains notice of changes. And just like mbozek said, I throw it out after only the quickest glance. That the deceased did the same is of no great surprise to me. Failure to read and understand literature sent by a financial company is the investor's fault and not theirs.

You use the word "unilaterally" as if this was a negotiated contract to begin with. You either agree to the IRA custodial agreement or you don't open an IRA there; you either agree to changes made to the IRA custodial agreement or your terminate and move your IRA to another custodian. That is the extent of the negotiation involved.

Kurt Vonnegut: 'To be is to do'-Socrates 'To do is to be'-Jean-Paul Sartre 'Do be do be do'-Frank Sinatra

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It would seem that no bank, securities company, or other holder of an IRA could unilaterally decide to change its policies without insuring that the owner was aware of the change

You seriously overestimate what constitutes notice of a change. I get a little pamphlet from my IRA company every year or three that contains notice of changes. And just like mbozek said, I throw it out after only the quickest glance. That the deceased did the same is of no great surprise to me. Failure to read and understand literature sent by a financial company is the investor's fault and not theirs.

You use the word "unilaterally" as if this was a negotiated contract to begin with. You either agree to the IRA custodial agreement or you don't open an IRA there; you either agree to changes made to the IRA custodial agreement or your terminate and move your IRA to another custodian. That is the extent of the negotiation involved.

So, if, at the time you enter into the contract with the holder, their custodial agreement states that your estate will be the beneficiary unless you designate otherwise, they should be able to change this with, or without, your consent and without any proof that they provided you with notice of the change. Their custodial agreement is not that specific.

It appears that legislation may be necessary to see that consumers are not misled, or misinformed about these agreements. Yes, they could go to another company, but most consumers do not read the fine print and rely heavily on the agent, or financial representative who assists them in setting up their retirement accounts. The reps I have spoken to since this came up had to look through their agreements to see exactly what they said about accounts having no named beneficiary.

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Just because the result is not the intended one does not mean that there was any sort of "misleading" or "misinformation". There was, after all, no financial advantage to Wachovia to keeping her from naming a beneficiary. Had the IRA holder just indicated on the original form (surely there was a place to do so) that the estate would be the beneficiary, nothing could have gone wrong.

Please do not suggest that this be solved by legislating more communications. Do you read those ridiculous "privacy notices" that so many organizations are required to mail out each year? Does anyone? Do you read everything your credit card issuer puts into the monthly bill mailed to you? If a requirement were added that any time an investment contract were modified, whether a material change or not, then a separate mailing had to be sent out (not just an insert in another mailing), who would bear the cost? While it may have made a significant difference here, most of us would not consider changes in default beneficiary provisions a material change (but then most of us are not both trying to keep money away from someone who would normally be considered a suitable recipient, such as a son, while at the same time persisting in leaving no written directions concerning the distribution of that money).

Wills only govern assets held in the estate. Proceeds of an IRA would only be part of the estate if the estate were the beneficiary.

Is it in fact known that the original contract did not contain the same default language that is there now? Did Wachovia actually say that they had changed their rules? Wouldn't "name a beneficiary or it goes to the estate" be much more likely to be unsatisfactory than the current provision? Sending the money into the estate routes it through probate court, which could delay the distribution and incur significant extra cost. Disinherited sons have even been known, on occasion, to contest wills. Much cleaner, absent a named beneficiary, to have the proceeds go to the person the deceased had married a couple of years (or weeks) earlier.

Always check with your actuary first!

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  • 1 month later...
Guest redsands

No legislation needed. This is a contract dispute between the heirs (the "estate") and Wachovia. Wachovia probably decided that they would have LESS legal battles by changing the default beneficiary than keeping it the estate. MOST people leave the form blank and put nothing in error, not intentionally. Are you sure you believe the heirs on this one? Sounds strange to me. My radar would be up. Scary thing is unless YOU know what her intent was a court would probably agree with Wachovia. Her not putting anything doesn't mean she was trying to disinherit her son. Leaving it blank was the WORST thing to do if that was her intent! Leaving it blank just meant she left it blank, not that she was disinheriting her son. Do you really think 1) she believed leaving it blank would disinherit her son? and 2) That she knew Wachovia's default beneficiary at the time? If she was that savvy why didn't she just write in a name???

If Wachovia did pull the rug from under this lady, I just don't get why people keep accounts with these wirehouses...no service. EVERY year we go over client beneficiaries with client's. If a client wants her estate as beneficiary she should put "estate" on the form. Who the heck was advising her on the account? If there in fact was a rep on the account, I would start with a complaint against that person. Then, it would at least get in front of the compliance people. The damages on this could involve probate costs which is another thing that was missed! Ask the Wachovia compliance to pay for the legal fees and I be the contract dispute would go away. ;)

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  • 2 months later...

Leaving the form blank does not indicate a concious decision. The woman should have explicitly specified "the estate" or some other family member. How can you expect Wachovia to comply with some undeclarer disinheritance?

Banks, brokerages, credit card companies and insurance firms send out updates of agreements virtually every year in part because of changing government regulations. I don't know any normal person that keeps all of these contract changes.

I completely agree with the statement made earlier about "privacy notices". Its a big wast of time, money, trees, etc. I wonder what percent of the USPS revenue comes from postage on these mailings? I also agree that these statements are not bi-party negotiations, but one sided statements of procedure. The banks, brokerages, etc. are doing this to comply with the law....AND FOR THEIR CONVENIENCE and EFFICIENCY OF OPERATIONS. You probably see those as harsh words, but I think its pretty close to the truth.

I think you have unrealistic expectations of the custodian to understand the nuances of the deceased's family ties. If a family has these kinds of issues (and sadyly, many do) they should be extra careful about their fiancial paperwork. Where was the lawyer who drafted the will? The whole issue of beneficiaries should have been reviewed by the lawyer drafting the will.

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  • 5 weeks later...

It is my guess that the IRA provider changed its default rule from the IRA owner's "estate" to a list of surviving individuals so that there would not be accelerated RMD distributions required after her death. If the IRA was payable to her estate, the full IRA balance would have to be paid out within 5 years if she died before age 70-1/2 or over her remaining fixed-term life expectancy if she died after age 70-1/2). For RMD purposes, in the absence of any affirmative beneficiary designation by the IRA owner, the default language in the custodial agreement controls. If there are individual living beneficiaries under the default provision, then RMDs can usually be spread out of the life expectancy of the beneficiary (which can be a very significant advantage). Further, if the IRA had been paid to her estate, RMDs would probably have been subject to higher and compressed tax rates. The IRA provider likely changed this provision to protect its IRA owners from a failure to name a beneficiary. Unfortuantely, it had a bad collateral result in your fact pattern. I agree with the comment made, never rely on default language and make an affirmative beneficiary designation.

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  • 3 years later...
Guest rbacher

I just came across essentially the same situation -- decedent has two children but is estranged from one and left her estate to the other one. Decedent had an IRA at Wachovia but failed to name a beneficiary. She does not have a spouse so Wells Fargo is telling me that the IRA will be divided evenly between both children, which is clearly not what decedent wanted. What I am trying to find out is what the rule at Wachovia was when decedent opened the IRA (May 2010). She signed a two page "Agreement" which, in preprinted language at the bottom, incorporates by reference the "Wachovia Bank Individual Retirement/Educational Savings Custodial Account Plan." I have asked Wells Fargo for a copy but either they no longer have it or aren't looking for it. They repeatedly send me documents that show the current Wells Fargo policy (i.e., distribution to spouse or children where there is no beneficiary). I understand Wells Fargo's current policy. Does anyone know Wachovia's policy as of May 2010? Anyone have a pdf of the actual Plan?

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It appears that legislation may be necessary to see that consumers are not misled, or misinformed about these agreements. Yes, they could go to another company, but most consumers do not read the fine print and rely heavily on the agent, or financial representative who assists them in setting up their retirement accounts. The reps I have spoken to since this came up had to look through their agreements to see exactly what they said about accounts having no named beneficiary.

So you want legislation to see consumers are not misled and then say consumers do not read the fine print.

While I'm opposed to legislation, it would be interesting to see legislation that required consumers to read the fine print and retain proof that they had done so.

William C. Presson, ERPA, QPA, QKA
bill.presson@gmail.com
C 205.994.4070
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Guest rbacher

I'm not concerned whether there is or is not legislation. What I'm trying to do is find out what Wachovia Bank's policy was as of May 2010 in situations where the owner of an IRA dies but the IRA does not name a beneficiary. The policy at this time (of Wells Fargo) is that it goes to the spouse or, if no spouse, to the children. But I have hit a road block trying to determine with some level of certainty what the policy was at Wachovia, not Wells Fargo, back in May 2010. I was hoping someone on this forum might know or, even better, have a pdf copy of the Wachovia IRA plan that was in effect as of that date

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"Does anyone know Wachovia's policy as of May 2010? Anyone have a pdf of the actual Plan?"

I'm not an investment person, so I honestly have no idea, but a couple of thoughts - someone may know the answers to this.

Is it possible that this language from Wachovia for their IRA had to be registered with the SEC, and if so, is it possible to easily obtain it from them?

Same question with the IRS - IRA agreements, I believe, are approved by the IRS? If so, is it possible to obtain easily from them?

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Guest rbacher

I did think about that -- contacting the SEC or the IRS or some other agency of the government where the plan was or may have been registered. That's probably the next step if no one here can help. I came across this topic on this forum yesterday as a result of a general Google search. The original post is almost exactly the same as my situation so I was hopeful that someone here might know the answer or have a copy of the Plan

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It probably does not matter what the default beneficiary provision was in 2010, because if it was amended since then by the prototype sponsor, the 2010 provisions are no longer valid or enforceable. Sponsors of IRA prototypes have the authority to amend them in a number of ways without the consent of the account owners, and an IRA prototype that did not point to the spouse (or, if no spouse, blood relatives based on rank, without prejudice) as the default, in preference to the estate when the owner of the IRA makes no explicit designation, would seem to be in need of amendment. As noted by at least one poster above, the estate would usually be a poor choice for a default. The IRA owner does not have the power to enforce superceded provisions, especially provisions that had not been amended in a way to remove rights that the owner had had. The owner in this instance always had the ability to designate the beneficiary to his or her exact specifications but apparently did not do so. One presumes that there was a mention of the change (if there was one) in one of the mailings to the IRA owner (perhaps the one with the privacy policy which, be it noted, virtually nobody ever reads). As noted by a previous post, it is almost impossible for the IRA owner to prove that no notice was given, especially if the IRA sponsor has a record of having sent notices out.

Always check with your actuary first!

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Guest rbacher

Yes, I think you are exactly correct. I understand I have an uphill battle here. But I need to make some effort on this. My client is the child who inherits 100% under the will. The other child was intentionally cut out of the will but now will get half of the IRA. My client has directed me to see if she can receive the entire IRA, as well as the probate assets, as she is convinced that was her mother's intent at the end of her life. So ... while the policy can be amended at any time, I can attempt to obtain the results my client wants in two ways. One, if I can get a copy of the Wachovia plan in effect in May 2010, and if it defaults to the estate, I can present it to the Wells Fargo people I have been dealing with locally and at least shift the burden to them to assert that the policy was subsequently changed. I am not sure they will do so, as they have been disorganized and somewhat confused in my dealings with them so far. Second, there may be a possibility that the Wachovia plan (as opposed to the Wells Fargo plan) never was amended. Wachovia was being integrated into Wells Fargo during the time frame of 2008 through 2011. The IRA in my case was opened May 2010. The document signed by the decedent clearly has Wachovia in large letters at the top and makes several references to Wachovia and no references to Wells Fargo. So clearly at that time, May 2010, Wachovia had not been fully absorbed by Wells Fargo (at least in this location - I think it proceeded differentially in different areas of the country). But a very short time after the decedent opened her IRA, all of Wachovia had been fully integrated into Wells Fargo and most likely (I'm not sure about this) only Wells Fargo documents were used thereafter. I am aware that Wells Fargo always (at least back to early 2000's) defaulted to spouse and children, so possibly no one at Wells Fargo saw any need to amend the Wachovia plan, because they weren't using that paperwork any longer. Again, I acknowledge I have an uphill battle, but I would very much like to get hold of the Wachovia plan that was in effect as of May 2010 and least then I can see what the Wachovia plan, rather than the current Wells Fargo plan, says about failure to name a beneficiary.

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Based on my original reply in this thread dating from 2010, I will state emphatically that the IRA agreement that I reviewed in 2010 would have split the IRA between the two children in your situation.

I suggest you closely read posts #1 and 2 of this thread as they (very clearly in my opinion) provide information as to what the Wachovia IRA agreement said at that time. While I do not have a copy of it any more, I have no reason to doubt the conclusions I and other members of the board reached at that time.

Kurt Vonnegut: 'To be is to do'-Socrates 'To do is to be'-Jean-Paul Sartre 'Do be do be do'-Frank Sinatra

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Guest rbacher

I recall seeing your post and the link to https://www.wachovia...Disclosures.pdf which I thought (and hoped) was a link to the full agreement, but it takes you to a one page letter. However, my client called yesterday afternoon and said she found the full plan among her mother's papers. She will bring it into the office and I will be able to review it, which has been my main objective in posting to this forum. I don't doubt that it says the IRA goes to the spouse or, if no spouse, to the children. I would just feel like I have been more thorough in my job if examine the document myself. I will post the results. Indeed I can post a pdf of the full document, if anyone on the forum wants to see it. And lastly, a note of appreciation to all who answered my posts. Internet forums (so long as people stay on topic and don't start insulting other posters, which I have sadly seen on other forums) are just amazing.

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  • 2 weeks later...

When a named beneficiary is not named the account goes to the decedent's estate. Fine. After the account is opened a first class mailing goes out to the decedent telling her that her estate is no longer her beneficiary and if she does not have named beneficiaries on file the account will go to her spouse and if their is no spouse to her children. Such a fundamental change to the Designation of Beneficiary Form should have been communicated by Certified Mail RRR.

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A plan amendment, if there was one, changing the default beneficiary would not represent a fundamental change. Anyone who cared would have designated a beneficiary, and would thus not be affected by the amendment. A change that would impact the ongoing operation of the IRA (i.e., material changes in the expense charges) might be considered fundamental, not the disposition of the IRA upon the owner's death, especially if they had not bothered to designate a beneficiary.

The disadvantages of the proceeds going to the estate noted in some of the earlier posts would make it generally undesirable to have the default beneficiary be the estate. The cases in point here, where the beneficiary not being the estate thwarts intentions to keep money from going to disfavored children, are relatively rare. Spouse, then children equally, then maybe parents or siblings, and only then estate, is the most rational and desirable set-up for establishing beneficiaries in the absence of an explicit designation. That is what most people would want.

Requiring the IRA sponsor to provide effective notice of changes in the beneficiary provisions would be more appropriate if changes in the law or the IRA provisions made it necessary to redo existing beneficiary designations (although it is hard to imagine that ever happening).

Leaving the beneficiary line blank on the application could be construed as "Hey, I'll be dead! Why would I care?" If the desire is to have it be the estate, how much effort would it have been to write "Estate" on the beneficiary line?

It is not unlikely that the IRA provider has many thousands of customers, most of whom would complain if they found out that the IRA provisions tried to bypass the spouse or children in the absence of a valid beneficiary designation. With thousands of customers, important notices are sent out, presorted, with the annual privacy notices, with a designation of "IMPORTANT NOTICE" on the envelope. When was the last time anybody received a certified letter from Wells Fargo or Bank of America? A mass mailing via certified mail from anyone?

Always check with your actuary first!

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