Uncooperative Beneficiary and Uninformed Bank
One of three beneficiaries of a very small Roth IRA refuses to complete the paperwork to receive their share or to disclaim their share. The bank holding the IRA refuses to separate the IRA into three until all beneficiaries have completed paperwork.
It has been almost nine months since the date of death, and many months since the beneficiary received the necessary forms. It is time to push this to resolution.
What is the custodian to do when one (of multiple) beneficiaries refuses to complete paperwork to receive or disclaim their share? Can the custodian separate the account for the other beneficiaries and retain the share for the uncooperative beneficiary? At what point, if any, does the custodian end up splitting the entire IRA among the cooperating beneficiaries? Mandatory distributions will be required in 2013.
The IRA only has cash assets which are easily divisible. It was the intent that each beneficiary receive their share in a separate IRA so they could manage it as they saw fit, rather than keeping it as a single IRA.
I would appreciate it if you can point me to any sources that can be provided to the bank to push them to properly act.
Permalink Submitted by Jose Morales on Thu, 2012-12-13 04:42
There are no regulations that prevent or restrict the custodian from setting up a separate account for the two beneficiaries that would like to do so right now. There is also no regulation that compels them to do this as well.My suggestion is to gain an understanding of why they have taken this stance. Maybe it’s a procedural matter or maybe it’s a misunderstanding of regulations. Until you know the reason for their position you won’t be able to address their concerns and help them come around to acting favorably towards the two beneficiaries that wish to set up separate accounts. At the same time, find out why the third beneficiary is being difficult and show them that it is in their own best interest to cooperate.
Permalink Submitted by John Jones on Thu, 2012-12-13 17:34
Thanks for your reply! The bank will not set up a separate account for the uncooperative beneficiary without paperwork from that person. Banks are required to have ID, etc for their customers, by regulation. The bank will not set up two beneficiaries separate accounts and leave the 1/3 share in the deceased’s IRA for the uncooperative beneficiary because they say, well, lots of reasons that sound like throwing stuff at a wall. Potential unequal distribution among benefciaries which would violate the custodian agreement, they must separate out the old account all at once or face audit problems, etc. The bank says they cannot just close and distribute the IRA because the beneficiaries must first receive it in IRA form (requiring paperwork from each beneficiary to setup the IRA for each). _____________________________________________________________________________________Regarding getting the one beneficiary to cooperate, good luck with that. The beneficiary can’t be reasoned with. Reasons for difficulty change as soon as any are addressed. The beneficiary has legal counsel that the beneficiary hired, but will not accept counsel’s advice. Counsel will not act on client’s wishes if they are against the best interests of the client, unless the client forces them to, and the uncooperative beneficiary will not force the issue with counsel. __________________________________________________________________________________________The game plan is for the two beneficiaries to go to the bank with completed paperwork and force the issue to get definitive objections. (Been done twice, but not with both beneficiaries present nor with paperwork demanding action). Any help or suggestion is appreciated.
Permalink Submitted by Alan - IRA critic on Fri, 2012-12-14 01:18
The bank may be bluffing since it is much easier for them to handle the 3 interests simultaneously. However, unless their IRA agreement is specific to the contrary, the bank should not have the legal right to hold the two cooperative beneficiary distributions or transfers captive to an uncooperative party.When there is only one beneficiary, the solution to an uncooperative custodian is to transfer the account elsewhere. But this account cannot be transferred without cooperation from all 3, which looks unlikely. But the other two should be able to press this issue to senior bank officers to get their individual inherited IRAs established. Then the two beneficiaries can either transfer their inherited IRAs out or live with this bank.IRA owners should make a note of this when determining whether establish separate IRA accounts for their beneficiaries or not.
Permalink Submitted by Jose Morales on Fri, 2012-12-14 17:33
I understand their concern regarding setting up a new account for the uncooperative beneficiary. Banks have very strict regulatory obligations when opening new accounts and they simply can’t open an account without gathering some mandatory information from the account holder. There concerns about an unequal portion being given if the beneficiary’s choose to execute the separation of the account at different times is more about convenience, as there is no regulatory requirment that the account be split for all the beneficiaries on the same day. Make sure you are speaking to their IRA expert, if they have one. You do not want to deal with front line staff for this issue. Would the 3rd beneficiary be willing to sign a “hold harmless” declaration stating that they have no issues allowing the other two beneficiaries to take their portion of the IRA before they themeselves make a final decision? It may ease any of the bank’s concerns, real or not. The truth here is that at worst, it’s just inconvenient for them to split this account with only 2 beneficaries. They may have procedures in place that tell their front line staff that this is the way it must be done, but if you get to the right person you should be able to reason with them and find a solution that works for everyone.
Permalink Submitted by John Jones on Fri, 2012-12-14 19:39
Thanks again. The uncooperative beneficiary will not do anything or sign anything. Definitely will try to start at the top with the bank, which otherwise has been great to deal with through the years. The bank has been comedic on this tiny IRA. A beneficiary called me while at the bank because the bank said they were out of the necessary forms and to come back in three months (they were changing names and did not want to print new forms). Seriously. I instructed the beneficiary to close all accounts at that bank immediately, which was done. They suddenly found a form that would work. Closed the accounts anyway, which were multiples of the IRA and significant to this small bank. Will report back once the two beneficiaries have gone to the bank together, with documents, to force the issue.