Millions of people have IRA accounts. These Individual Retirement Accounts often times are quite large, the result of the person’s hard work and sacrifice in contributing to the account over their entire career.
As important as it is to contribute to these retirement accounts, it is also important to manage these accounts from an investment standpoint as well as properly providing for a named beneficiary in the event of the account holder’s death. Naming a beneficiary on the account is as much a responsibility of the account holder as the account owner.
For example, a loved one passed away and the family discovered that the Decedent held a sizable IRA account with a well-known national brokerage firm. The Executor contacted the brokerage firm with the presumption that the named beneficiary was the Decedent’s child and sole heir named in the Decedent’s will.
It was discovered that this IRA account had been established by the Decedent prior to his marriage and before he had children. When contacted, the brokerage firm indicated it was going to pay the account to a non-family member who has had no contact with the Decedent for over 25 years. The brokerage firm based this position of payment not on a written designation of beneficiary form, signed by the Decedent but based on “what was in the computer” at the brokerage firm.
Our firm was handling the estate on behalf of the Decedent and the family. When the brokerage firm took this position, a position that we felt was unsupportable, we immediately instructed the brokerage firm not to make any distributions whatsoever pending court action before the Orphan’s Court. A lawsuit was immediately filed in Orphan’s Court to ask the Orphan’s Court who was the rightful beneficiary of this substantial IRA account.
During the course of the lawsuit, we were able to obtain from the brokerage firm all of their records on this, as well as other accounts held by the Decedent. We also obtained all of the brokerage accounts policies, protocols and procedures with regard to identifying an account beneficiary and management of the account.
On behalf of the estate we also hired as an expert witness, an individual within the financial industry familiar with account management, practice, procedure and compliance of accounts such as this according to federal and state law and industry practices.
It was discovered that contrary to their own specified procedures and contrary to industry practice and regulations a written beneficiary designation, signed by the Decedent before his death had not been obtained. At that point, it became clear that the account could not be paid to the non-family member based on dated and mistaken computer entries that were over 30 years old.
Our suit before the Orphan’s Court was contested but based upon the documents that we presented as evidence and the testimony of our industry expert it became clear to the court that the IRA account could not be handed over to someone “in the computer”. In effect, the court found that there was no properly identified individual as beneficiary on the account and therefore the account should be paid to the Decedent’s estate, effectively awarding the account to the Decedent’s sole heir and in conformity with the Decedent’s Will.
To avoid confusion, or even a possible disastrous result, with regard to stock, IRA, 401(k) or other accounts it is important to manage not only the investments but the necessary account paperwork, including the beneficiary designation, a designation that should be made in writing.