Beneficiary IRA

[Guest P A Weick]

For the IRA providers out there: do you as a standard have a beneficiary sign a new adoption agreement for an IRA? Or do you rely on the old contract? My reason for thinking I ought to get them is that, on our form, it enables the beneficiary to appoint beneficiaries for their share and documents more clearly that they understand and are bound by our contract. I would like to hear what others do.

[Guest Derelict]

Yes.

I recently redesigned our adoption agreement solely for this purpose. I didn't like having a bene filling out paperwork that could be construed as their own IRA.

[Appleby]

So do we...one of the reasons ...because (as you stated Weick) the beneficiary is allowed to designate a successor beneficiary...

[mbozek]

D: Why isnt the beneficary the owner of the IRA after the owner dies with all the rights of ownership? If the bene is not the owner then the owner must either be the custodian (not likely because the custodian does not want to be the fiduciary) or the estate of the owner which passes the IRA through probate. All of the IRA custodial agreements that I have reviewed make the beneficary the owner of the IRA for all purposes to avoid the need to have the beneficary sign a new adoption agreement. ( Another question- what does the custodian do if the beneficary refuses to sign an adoption agreement?)

[Guest Derelict]

M, I did poorly word that: I do not want brokers opening up bene accounts in the beneficiaries name only with no reference to it being and inherited account, or even if the account was established/registered correctly, later on someone pulls the Adoption Agreement and it reads as John Doe's IRA with no other paperwork and says "Hey, this account is set up incorrectly lets try to fix it" and bad things happen from there.

I also only deal with self directed brokerage accounts so any account opened has several other requirements that must be met before an account can be opened that are all conveniently on the same form, which they will sign to get the money.

[Appleby]

mbozek

funny you should ask “what does the custodian do if the beneficiary refuses to sign an adoption agreement”…I started to add reference to that in my original response and then decided against it.

Derelict's operational requirement seems similar to ours...

Our IRA plan document does make “the beneficiary the owner of the IRA after the owner dies with all the rights of ownership”…however, due to systematic limitations, we require a new account number to be assigned and a new account established for the beneficiary. The assets are transferred (non-reportably) to this new ‘inherited/beneficiary’ IRA for the beneficiary ( established in the name of the beneficiary and the deceased and the tax ID # of the beneficiary. We have had instances where beneficiaries have refused to sign any new adoption agreements, because they seem to think it means establishing their ‘own’ IRA instead of an ‘inherited IRA’. In those instances, we waive the requirement for a new adoption agreement and use the information provided on the other documents that are required to establish the ‘inherited/beneficiary IRA’, such as tax ID number of the beneficiary , name and address etc. If no beneficiary designation form is completed by the beneficiary, the default beneficiary provisions of the document applies.

[mbozek]

Some attorneys advise the beneficiary not to sign a new adoption agreement because it would consititute a distribution of the IRA into a taxable account in the name of the beneficiary. the Custodian will transfer the funds to a new account entitled IRA of John doe, decedent, Richard Roe, beneficiary and use the ssn of the beneficary to avoid having the beneficary sign a new adoption agreement.

[Appleby]

True…in the majority of cases where a beneficiary refuses to sign, it stems from advice received from an attorney…. Most times, in cases such as these, when I explain to the attorney the purpose of the document, they usually agree to allow the beneficiary to sign. The refusal comes in because the attorney may think that the movement of assets from the account of the deceased is a distribution …as you know, a death distribution to a beneficiary is not rollover eligible ( unless the bene is a spouse) and therefore taxable. Most financial institutions will just re-title the same account to add the name of the beneficiary, show the IRA owner as deceased, and has the system flexibility to process distributions from the same account of the deceased, and have it reported in the tax ID number of the beneficiary, while still being able to accommodate any required 5498 reporting for the deceased. Some institutions do not have that system flexibility and as such must transfer the assets to a new account (number). Once the attorney understands that the movement of assets is a non-reportable and non-taxable transaction, which is necessary to accommodate required tax reporting, i.e. 5498 and 1099-R when the beneficiary eventually decides to distribute the assets, he/she usually agrees to allow the signing of the adoption agreement by the beneficiary. As Derelict mentioned in an earlier post, brokerage firms may have different operational requirements for documents used to assign a new account number, even if that account is established just to receive a transfer of inherited assets. The key( for the beneficiary and the attorney) is to make sure the signing of the document does not represent the establishing of the beneficiary’s ‘own’ IRA...instead, it must be an ‘inherited/beneficiary’ IRA, established solely for the purpose of proper audit trail and to accommodate any tax reporting that cannot be accomplished under the account established by the deceased….notwithstanding all that , the new adoption agreement is not a regulatory requirement…there is no revocation that could occur and no IRA disclosure statement that is required. It is merely an operational requirement, which could be negotiable at some financial institutions. It may be less aggravating to the beneficiary, and reduce the occurence of going back-and forth, if he/she just signs the document and allow the transactions to occur seamlessly