Don't Be Blind-Sided by Default IRA Benefi ciary Forms

AuthorSeymour Goldberg
ProfessionSenior partner in the law firm of Goldberg & Goldberg, P.C., in Woodbury, New York
Pages157-159
157
DON’T BE
BLIND-SIDED BY
DEFAULT IRA
BENEFICIARY FORMS
IRA OWNER ISSUES
The IRA owner may desig nate on an IRA benef iciary form who are to
be the beneficiaries and receive t he balance in the IR A owner’s account
upon his/her death. If al l beneficiaries have predeceased the I RA owner
or if at the time of the death of the IR A owner there is no designated
beneficiary, then the beneficiary shall be deemed in accordance with
the default rules under the IRA agreement. If a primary beneficiary
survives and disclaims his/ her interest, then the contingent beneficia ry
will have a right to the IR A assets. If no conti ngent beneficiary is in
place, then the default beneficiary rules apply. However, under state law
a spouse may have rights to the IR A death benefits even if the spouse is
not selected as a beneficiary of the IRA.
A major brokerage firm together with a mutual fund company has
default IRA beneficiar y language. It states t hat in the absence of a des-
ignated beneficiary, the beneficiary is the spouse. In addition, it further
provides that if there is no spouse then t he beneficiary becomes the issue
per stirpes. This can be a disaster if one sw itches from one IRA i nstitu-
tion to another not realizing that the beneficiaries of the prior IRA do
not become the beneficiaries of the new IR A account. In one instance, a
CPA was the beneficiary of his spouse’s IRA , but when the spouse IRA
owner transferred money to a new IR A institution, she failed to fill out
a beneficiary form. In this particular case t he default beneficiary of the
IRA was the deceased spouse’s estate.
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