Where a charity is a beneficiary of a donor’s custodial IRA, and that donor dies, some IRA custodians mandate that the charity set up an Inherited IRA account (a new account) just to then be able to get their death benefit from. In other words, they won’t pay the death benefit directly from the original IRA owner’s IRA.

And in doing so because the charity is now a “new” customer in their eyes, the IRA custodian asks for personal information on the charity’s CFO (or board members) in order to set up the account (e.g., personal SSN of the CFO, home address, home telephone number, date of birth, etc.). The charity instead gives its own EIN and the charity’s address but some (not all) IRA custodians push back and mandate the CFO’s personal information in order to require the new Inherited IRA account to be opened. They say the “Patriot Act” requires this but many disagree to that interpretation of the Patriot Act citing charity-beneficiaries like the Smithsonian Institute or St. Jude Children’s Research Hospital are not known terrorist organizations.

The charity would prefer to have its share paid as a lump sum based on the original IRA contract the deceased opened. What am I missing to help the charity get its money paid faster? It seems like a waste of time for the IRA custodian to set up a new inherited IRA account when the charity will just liquidate it immediately as the charity will not choose to “stretch” its death benefits at the custodian but instead put the funds immediately into their mission. Is it that the IRA custodians assume most all beneficiaries are individuals and hence set up their administrative payout systems assuming all beneficiaries will naturally want the stretch approach? Some IRA custodians have chosen to give charities a break on this but other IRA custodians are refusing to make any exceptions for the charities.

In fact a recent PLR was issued saying that the IRA custodian could legally have a charity as the owner of an inherited IRA although the attorney who requested it does not agree with the outcome (I was not the attorney). That was going to be the legal basis to try to prevent an Inherited IRA being mandatory by a few custodians.
Any thoughts or suggestions?