Dear Dan,
My mom had an IRA and my dad was the primary beneficiary. My sister and myself are contingent beneficiaries. My parents both passed away, my mom two years ago and my dad one year ago. The bank stated they sent the funds from my mother to the estate of my father. The lawyer of the estate does not communicate where this money went and I have no money sent to me as my half of this IRA. What can I do to get this money?
Dear reader,
So sorry to hear of your parents’ passing.
I am not a lawyer and you should retain your own counsel on this. While I cannot give you legal advice, I can give you some general information about how beneficiary designations work.
When an IRA owner dies, the primary beneficiary inherits instantly. That new owner has all the usual rights as an IRA owner. For instance, they can make decisions about how the funds are invested, when distributions are made, how much is distributed (subject to any Required Minimum Distribution requirements) and importantly, name whoever they want as their primary beneficiaries.
Read: Turning 72 or 73 this year? Here’s what to do about your required minimum distributions
Upon inheritance by the primary beneficiary of the original IRA owner, the original owner’s contingent beneficiary designation becomes meaningless. The contingent beneficiaries of the original IRA owner only have rights to the original IRA funds if the original owner’s primary beneficiary was not alive at the time of the original owner’s death.
You don’t say who named you and your sister as contingent beneficiaries so I’m speculating. Here is what it appears may have happened based on the limited information.
When your mom died, she probably had named your father as her primary beneficiary. He probably rolled the funds into his IRA because that is the most common option selected by spouses. Spouses are the only beneficiaries that can inherit an IRA and roll the funds into their personal IRA. All other beneficiaries can only roll the funds into an Inherited IRA. From that point, your dad would treat this money as though it were always his.
What would happen next would depend on what he had as his beneficiary designation on his IRA at the time of his death. If his designation still had your mom as the primary beneficiary, she was not alive at the time of his death so the funds would go to his contingent beneficiaries, if he listed any. If he did not not, the account goes to his estate. Failing to update a beneficiary designation is something we see often. After the loss of a spouse, the to-do list is long, and it is easy to let beneficiary designations slip down on the list.
If his primary designation was to his estate or he did not have a primary beneficiary designated at the time of his death, the assets would go in his estate and would be paid out through the probate and estate settlement process. If this is what happened, the probate process is a public one, and you or your attorney should be able to learn what his will says about assets in his estate. If he did not have a will, the intestate laws of his state would guide the estate settlement. Those are public also and typically provide an interest to lineal descendants
The estate attorney cannot deny you your legitimate rights to your dad’s assets but whether you have a right to the assets is a function of what the various documents say. Again, these are generalities. If you continue to get stonewalled by the estate attorney, you may want to get your own lawyer to dig onto it.
If you have a question for Dan, please email him with ‘MarketWatch Q&A’ on the subject line.
Dan Moisand is a financial planner at Moisand Fitzgerald Tamayo serving clients nationwide from offices in Orlando, Melbourne, and Tampa, Fla. His comments are for informational purposes only and are not a substitute for personalized advice. Consult your adviser about what is best for you. Some reader questions are edited to aid the presentation of the subject matter.
