Pub. 8 2020 Issue 4

16 The Community Banker www.mibonline.org By Dennis Zuehlke, CISP, Ascenus AVOID COMMON MISTAKES WITH IRA BENEFICIARY DESIGNATIONS Guest Article “T he best surprise is no surprise.” Holiday Inn adopted this famous tagline in the 1970s to reassure guests that staying at one of their hotels would ensure that there were no surprises. After all, nobody likes unwelcome surprises, whether it be a lumpy pillow in a hotel room, an October surprise in a Presidential election, or the surprise a family receives when an IRA beneficiary designation—or lack thereof — results in the intended recipient not receiving the IRA assets. The trouble with an IRA beneficiary designation mistake is that it’s often not discovered until the IRA owner has died and it’s too late to correct it. Beneficiary designation mistakes can result in payment of the IRA assets to an unintended beneficiary, additional tax and legal expenses, delays in distributing the IRA assets, and reputational risk to you as the IRA trustee or custodian. Following are some of the most common IRA beneficiary designa- tion mistakes and best practices to help avoid them. Missing Beneficiary Designations More than one-third of all IRA death claims processed by Ascensus are submitted for processing without a beneficiary being identified, either on the IRA document itself or on a separate beneficiary form. In these cases, payment of the IRA proceeds is made to the deceased IRA owner’s estate under the Ascensus IRA agreement’s default provision. From a tax standpoint, payment to the IRA owner’s estate generally is the least desirable option. It often requires the IRA owner’s family to incur additional expense in estate processing procedures to collect the IRA proceeds. It also increases processing time and delays pay- ment of the IRA assets to the IRA owner’s family. Just as important, the IRA assets’ distribution under a state’s probate laws may not reflect the deceased IRA owner’s wishes. As an IRA trustee or custodian, you should make it a practice to have beneficiary information for every IRA you hold, which can be gathered on the IRA application when the account is opened. IRA ap- plications and initial and subsequent beneficiary designations should be permanently retained. However, there are several reasons why you may not be able to locate a beneficiary designation form at the time of the IRA owner’s death. Perhaps your organization merged with an- other entity, and you may not have received beneficiary information as part of the merger. Perhaps your organization moved to an elec- tronic record system and older beneficiary forms may not be available electronically, and — if stored in a paper format offsite —may not be readily available or retrievable. As a best practice, your organization should have a robust record retention system for its IRA program. If older beneficiary designation forms are still retained in paper format, they should be readily accessible, with backup copies stored offsite. Electronic records should be indexed properly so that forms can be found and accessed when needed. You should periodically review accounts for beneficiary information and proactively reach out to IRA owners to