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Beneficiary change on IRA without owner's consent


Guest FAB
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Writing "estate" or leaving the line blank has no impact whatsoever. By leaving the line blank she specifically designated the estate as beneficiary. This is a valid way of assuring that certain people do not share in the proceeds of the IRA distribution. This is the very reason the decedent named the estate in lieu of named beneficiaries. Contrary to your assertion she did "care".

That said, the custodian has the legal right to change the default beneficiary when named beneficiaries are not named. But when such a change MAY negatively impact the choice made by some account owners, it seems to me that such a change must be communicated, in such a way, that the recipient knows something important, deserving of their attention and possible action, is in the envelope. I wish I had a nickel for each pound of junk mail, labeled "important", I have received over the years.

I venture to say that only a small percentage of account owners leave the line blank or write in "estate". That said, how much time, effort and cost would it require to mail the Certified letter to only those account owners? or to email them? or to telephone them?

To say that an increase to the expense ratio is more fundamental to the investor than telling the investor that his/her estate is no longer a valid beneficiary and has been changed to spouse, if alive, or to children is to trivialize the clear intent of the decedent.

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In my opinion (for what that is worth), that, having left the line blank on the application form to open the IRA, she could only be considered to have "named" the estate as beneficiary if the application form to open the IRA clearly stated that leaving the line blank would result in the estate being the beneficiary.

The process necessary to distinguish between IRA holders who have formally designated beneficiaries and those who have not would be likely to, by itself, be costly. Would those IRA holders be willing to pay a $10 annual fee assessed only against those who have not explicitly designated a named beneficiary? Would it be reasonable and appropriate that they would also be assessed the costs of any special mailings necessitated by their failure to have named a specific beneficiary?

Granted that many unsolicited junk letters try to get your attention by labelling themselves as "important", but to be on the safe side, shouldn't one look over anything that comes from one's financial institution or investment firm? Not that I do.

Ironic, isn't it, that letters from the IRS are not labeled "important", but who would dare to disregard such a letter?

Always check with your actuary first!

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  • 1 month later...

Let me summarize:

1. Custodians have a IRA/Roth plan or agreement that usually has a amendment clause. Lots of amendments are driven by changes in IRS or banking rules. Some may be driven by State rules.

2. Custodians routinely mail out their plan or agreements to all participants. (These rarely lay out the changes. There is a lot of small print) Amendments generally are automaticly implemented..

3. Most customers never read these re-statements of the plan or agreement.

4. Much of the responsibility is on the shoulders of the customer, including eligible deposits, taking minimum distributions, and beneficiary designations.

The issue of designation of beneficiary is not a rare topic. It has been covered in almost every financial magazine, newspaper, the financial talking heads, on this website, etc.

I have seen some mailing of IRA custodians where they specifically mention that no benefiaries have been designated. I don't think that routine practice, but some accounts do generate mailing. I have also seen some of the IRA/Roth accounts where at least once a year the beneficiaries are listed on a statement.

This situation might be considered "unfair", but I don't think you can blame the custodian.

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