No beneficiary designation

[Guest WilliamWells]

A friend, residing in NY, lost her husband two years ago. One of his IRAs did not have a beneficiary designation according to the custodian. She has requested evidence of the documentation and has not been able to actually see how the account was set up. The brokerage firm is telling hewr that his estate(now closed) will have to be the beneficiary. She is now 50 so at the end of the five year period the she will not have reached 591/2. If the brokerage firm does not produce the documentation does she have any legal recourse against them? Are they not required to retain the paperwork in some format?

Thanks for any wisdom here..

[Kimberly S]

If she is not the beneficiary of the account, what right does she have to even request the forms? The executor of the estate should be the person requesting the information.

[masteff]

In addition to Kim's excellent observation, I thought I'd make a comment about 59 1/2. While a normal IRA owner has to pay a 10% early withdrawal penalty prior to age 59 1/2, one exception is when a distribution is made on account of death. So no penalty would apply. However normal taxes would still apply and future earnings will not be tax deferred as they were inside the IRA.

Links to IRS Form 5329 form and instructions.

[Appleby]

She could ask for (or review online if available) a copy of their IRA agreement. This would include default beneficiary provision, and provide some direction on ‘who is the beneficiary’, when no beneficiary designation is on file. Many default to the spouse.

But more importantly…An IRA cannot be established without an IRA adoption agreement. And all IRA agreements include a built-in beneficiary designation. The form or document should have included a provision that states ‘’’if you fail to designate a beneficiary, your beneficiary will be ____”.

Since they are saying that the estate is the beneficiary due to the lack of beneficiary form, ask the executor to send them a written request to provide written confirmation that they did not receive a beneficiary designation for the IRA or state whether they lost the beneficiary designation form, and ‘who is the beneficiary’.

The tax consequences and limited options that could apply if the beneficiary is the estate is too significant to let it go without being absolutely certain.

[John G]

All of the above. Plus, besides the likely default to spouse, you may find other IRA/Roths where a beneficiary was listed. You make no mention of if this was a recent marriage or if there were prior spouses. If this person was married more than once, it will be harder to establish a clear claim.

I find it interesting that this account was overlooked when the estate was handled. It has me wondering if there are any other assets in NY that were missed. You can use websites in each state to search for unclaimed accounts via SSN and name. You may need to do this now, then again after a few years pass since not every account will have been closed due to inactivity so soon.

ALERT to all readers: Do you know the designated primary benficiaries of your accounts? How about the secondary beneficiaries? If you have transfered any IRA/Roths or switched jobs (pensions, 401Ks), do not assume that the records have been maintained. Ditto if your broker or bank was acquired by another firm. Take a few minutes and confirm you beneficiary designations.

[jevd]

ALERT to all readers: Do you know the designated primary benficiaries of your accounts? How about the secondary beneficiaries? If you have transfered any IRA/Roths or switched jobs (pensions, 401Ks), do not assume that the records have been maintained. Ditto if your broker or bank was acquired by another firm. Take a few minutes and confirm you beneficiary designations.

Say Amen to that. In my 30+ years in this business, the most irritating issue is when someone dies and their is a beneficiary dispute because someone got married, lost a spouse, divorced or had additinal children and didn't adjust their beneficiary designation to consider the change. Please Please, all of you financial planners & advisors out there and anyone else in these situations, have your clients review their beneficiary designations and for that matter all of their financial plans including wills and trusts on a regular basis to be sure they're up to date.

i'll get off my pulpit now.

[John G]

Jevd - how true, how true.

I am in Florida right now and reviewing various documents my mother and father had prepared in 1999 and revised in 2005. So far I have found two outright mistakes plus two paragraphs that can be read different ways and are ambigious as to how the math should be applied.

And, don't get me started on the two annuities that are not flexible and don't work well with the current situation. My folks are locked in to a 3% return and if the best way to change that is to take the funds out quickly which triggers a tax rate bump. (Rant off)

I would recommend that everyone who is married, has kids, or is over the age of 30 spend one hour each year to review their designations of beneficiaries on insurance policies, pension plans, 401ks, IRAs and Roths. Not a bad to time also check that all deposits were done correctly, contribution years were correct and that investments are meeting your goals.

[masteff]

Since we're dragging out the soap boxes...

Don't forget at the same time to make a list of where everything is located (e.g., name of financial institution, type of account and account number). I just opened a new brokerage account online, they send nearly everything by email, would take my family forever to discover that one on their own.

Had the family in the original post in this thread known where the account was, they could have dealt w/ this in the original estate returns instead of having to potentially reopen the estate.