Why Many Beneficiary Forms Are Defective

AuthorSeymour Goldberg
ProfessionSenior partner in the law firm of Goldberg & Goldberg, P.C., Woodbury, New York
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

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