Following is a copy of the IRS Regs that apply to this situation as I understand it. The Reg section is 1.401(a)-(9)-(8). If you signed an agreement to the division of assets such that the custodian did not violate the agreement, I doubt if there is any legal recourse available.

Sounds like the bonds that you ended up with dropped in value relative to the other assets between the selected date and the actual funding date of the separate accounts. As you know, certain bonds without a market have ended up with an undeterminable fair market value or one that fluctuates violently in an unstable market such as this. Sounds like this type of agreement was fated to have winners and losers once exceptions were made to equal shares of all assets according to the beneficiary agreement.

IRS Reg 1.401(a)9-8:

Q–3. What are separate accounts for purposes of section 401(a)(9)?

A–3. For purposes of section 401(a)(9), separate accounts in an employee’s account are separate portions of an employee’s benefit reflecting the separate interests of the employee’s beneficiaries under the plan as of the date of the employee’s death for which separate accounting is maintained. The separate accounting must allocate all post-death investment gains and losses, contributions, and forfeitures, for the period prior to the establishment of the separate accounts on a pro rata basis in a reasonable and consistent manner among the separate accounts. However, once the separate accounts are actually established, the separate accounting can provide for separate investments for each separate account under which gains and losses from the investment of the account are only allocated to that account, or investment gain or losses can continue to be allocated among the separate accounts on a pro rata basis. A separate accounting must allocate any post-death distribution to the separate account of the beneficiary receiving that distribution.

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If I understand the situation correctly, your contention is that this was NOT done in a reasonable and consistent manner. That may be true, but if you signed off on the procedure and need to allege misrepresentation of the agreement, it may not be worth the legal fees you would have to lay out. I might also suggest if the other beneficiaries agree that they received more than their share of total value, that you settle this between yourselves since a proceding against the IRA custodian would seem to involve the other beneficiaries. If there had not been a signed agreement, you would probably have a stronger case. Typically, it is difficult to win similar cases against large financial institutions, as most of them retain highly experienced legal counsel who can prolong a case until you no longer wish to pay for your legal costs.

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I would go further than that and say that most front line employees at financial institutions do not like inherited IRAs. They can be more than a handful when you have an employee who does not have a very good grasp of IRAs in general, let alone all of the rules regarding IRA beneficiaries. Combine that with the beneficiaries who almost always do not have any idea of what those rules are either and you have the potential for a big mess.

Whatever your difficulties are (since the original post was edited), your best bet is to educate yourself on the beneficiary rules with regards to IRAs. If the dollars are significant enough it will be more than worth your time.

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