Why Many Beneficiary Forms Are Defective

• Author: Seymour Goldberg
• Profession: Senior partner in the law firm of Goldberg & Goldberg, P.C., Woodbury, New York
• Pages: 5-9

5

WHY MANY

BENEFICIARY FORMS

ARE DEFECTIVE

The author became aware of the fact that many IRA beneficiary forms

were incomplete or defective in 1990. It was at a time that a CPA asked

me to review an IRA beneficiary form of a major financial institution for

his client. The form provided that each child would receive 50% of the

client’s IRA account. I then looked to see what provisions were made in

the IRA beneficiary form if the child predeceased the IRA owner to make

sure that the child’s issue would receive the predeceased child’s share.

I was shocked to discover that the IRA beneficiary form provided that

the surviving child would receive 100% of the IRA proceeds and that

the issue of the predeceased child would be cut out. Flash forward—the

author has corrected many canned IRA beneficiary forms to date to avoid

this problem.

During the last ten years or so many IRA institutions have upgraded

their IRA beneficiary forms so that the issue of a predeceased child, if

any, will receive the share allocated to the predeceased child. That’s the

good news. The bad news is that there may be many IRA beneficiary

forms that were executed by the IRA owner before the revised forms

came out. That means that unless the IRA owner is alert, he / she may

have the old forms on file with the IRA institution.

How could many IRA owners make such a mistake? It’s easy and here

are some of the reasons:

1. Taxpayers often think that the IRA assets are disposed of by

their will. That’s not true for the most part since an IRA is a

nonprobate asset and is not governed by a will. The beneficiary

designation determines who is entitled to the IRA proceeds upon

the death of the IRA owner, not the will. The exception is when

there is no beneficiary designation on file with the IRA institution