IRA and no beneficiary

[benefitsguru]

Help! I'm trying to find a source that says the estate is the beneficiary when an IRA owner doesn't name a beneficiary (assume the IRA agreement is silent, that it doesn't provide a default beneficiary such as the spouse or the estate).

Without a beneficiary, I guess state law says that it goes to the estate (assume not a community property state)?

[mphs77]

I would think that may depend upon the state involved in the matter......

[My 2 cents]

Just wondering why the IRA agreement would be silent on so important a matter

[jpod]

Definitely a State law question. Is the IRA a trust or a custodial account? It might make a difference in reaching an answer under the applicable State law. FWIW I find it almost impossible to believe that the IRA trust agreement or custodial account agreement doesn't answer the question.

[Peter Gulia]

benefitsguru, I doubt one would find a State statute for the provision you imagine.

If for the set of issues you're thinking about State law becomes relevant, consider that an IRA contract often states a choice-of-law provision. Following this, the applicable State law might not be the law of the State in which the IRA holder resided or was domiciled. Imagine that a Vanguard IRA might specify Pennsylvania law; a Fidelity IRA, Massachusetts law; or a "Wall Street" broker-dealer's IRA, New York law or Delaware law.

(A choice-of-law provision might matter, for example, if someone assumes that a revocation-on-divorce statute of the State in which the IRA holder resided undid a beneficiary designation, but the IRA's chosen State law has no such law.)

As jpod suggests, it's unlikely that the IRA does not state a default-beneficiary provision.

[jpod]

I never volunteered an answer on choice of law, and that was quite on purpose. Hopefully the instrument provides for a default and the point is moot.

[benefitsguru]

Thanks for all the responses. The documents are silent as to who the default beneficiary is unfortunately.

[rcline46]

benefitsguru - assuming you are correct, then the provider of the document should be sued for malpractice and reported to the DOL.

[jpod]

benefitsguru, what is your role here? Are you the attorney representing the IRA custodian/trustee, the executor/administrator of the decedent's estate, or of some other "interested" person?

P.s., forget about malpractice against the provider of the document or reporting to DOL. Neither idea can go anywhere for different reasons.

[David74]

i don't think suing the document provider is the call at the moment. There exists provisions for such moments of doubts which need to be carefully studied to reach the final results.

[John G]

I've been gone for a few years....due to typical life distractions.  My posts aim towards investment questions, trying to simplify some issues for common layperson situations, and suggesting some of the minefields to avoid.

To all the general readers of this message board.  If you have a IRA, Roth or any other account with designated beneficiaries you should get into the practice one a year to confirm that your wishes are recorded for first and second choice beneficiaries.  It takes maybe 3 minutes online to check.  Do it at year end, when you start your taxes, of on your birthday.  

Do it every year because as accounting system software gets changed, financial firms merge,  and accounts get moved the custodial designation can get lost in the shuffle.  Even more important, as years pass, family structures change.

Tip:  You might be able to build in a "toggle" to each account which may allow a surviving spouse to make a decision on death how assets should pass.  For example:  spouse if primary beneficiary and three children are equal secondary beneficiaries.  Upon your death, wife has the option to accept all or part of the assets.  Any assets not claimed would be distributed to the children.  Example:   Wife started a Roth long ago, invested wisely, and now has a million dollar account.  Husband is the primary, three children are equal secondary beneficiaries.  Upon her death, the husband as primary beneficiary accepts $400,000 but declines to take the 600K.  Those funds  now pass to three children as 200K each. This might be used as an inheritance planning tool. 

Remember - check those beneficiary designations !