We frequently hear estate planners complain that IRA administrators will not execute an important part of an estate plan that they established for a client. The problem is most serious if it occurs after the death of the individual retirement account owner, when it is usually too late to take corrective action. Are these isolated cases or is the problem pervasive? If there is a widespread issue, what can estate planners and IRA administrators do to carry out their mutual client's objectives?
A survey conducted during a telephone seminar on Sept. 4, 2003 measured the extent of the problem. I was the guest speaker on “Stanley Quizzes the Estate Planning Experts,” a program moderated by Kansas City attorney Stanley Burnstein, organized by the University of Missouri-Kansas City Continuing Legal Education Office and broadcast to 91 sites from New York to Tampa, Fla., Chicago to Los Angeles to Anchorage, Alaska. Each site had, on average, four estate planners in attendance. We took the opportunity to pose a series of questions concerning problems that we'd heard estate planners were encountering with IRA administrators. The attendees were asked to respond by punching numbers on their telephone keypads. Sixty-nine percent of the locations — roughly 280 estate planners — responded. Of those, 68 percent reported having first-hand experience with IRA administration issues.
A startling 73 percent of these experienced planners said they had dealt with an administrator who refused to implement the planner's directives. Estate planners said they more frequently had problems with IRAs administered at mutual fund companies than those administered at banks. Whereas 58 percent of these experienced planners reported encountering difficulties with the mutual fund administrators, only 34 percent reported problems with bank administrators.
What, precisely, were the difficulties? Apparently, they were all over the board.
Nearly 46 percent of the experienced professionals reported that administrators had refused to permit a beneficiary to name successor beneficiaries in the event that he might die before the IRA was depleted. Less — 42 percent — reported that, after an owner's death, an IRA administrator had refused to create separate accounts for multiple beneficiaries, trusts or subtrusts.
Very few, just 17 percent, said an administrator had told a surviving spouse that he could not roll over a decedent spouse's IRA into a new IRA, because the survivor had waited too long after the spouse's death.
To cope with these obstacles, about 51 percent of the experienced lawyers said they have at some point recommended a client change IRA administrators so that post-death payouts would meet the client's stated objectives.
The bottom line of this informal survey is clear: No matter how expert we may be on what the law permits for post-death IRA distributions, unless we can effectively communicate and resolve conflicts with all of the parties involved — including IRA administrators — we may be stymied in meeting clients' goals.
Christopher R. Hoyt, professor, University of Missouri-Kansas City School of Law