Can a beneficiary designation be contested when it involves an IRA? Yes, in a variety of circumstances. When the owner of an IRA dies, state and federal laws may have some bearing as to who gets the money regardless of what the IRA owner put in his will.
This is to help protect spouses, minor children and other legitimate heirs from errors, fraud, an illegal beneficiary change (on technical grounds) or other problems. For example, in many cases, a spouse or parent’s assets must go to the surviving spouse and/or children in specific proportions.
Reasons for Contesting an IRA Beneficiary Designation
You can challenge the beneficiary of an IRA for a variety of reasons, explains probate and estate planning law firm Patrick & Associates. Sometimes, a spouse has had it with his or her wife or husband, and as a final insult, wills the assets to a charity, friend or cat. In other cases, someone takes advantage of a mentally incompetent person and persuades her to change her will to another beneficiary.
In some cases, a will is fraudulent or is written because of coercion. In other cases, the original documents might have errors that allow you to contest them. Some employer-sponsored IRAs require that a spouse be named as the beneficiary under the Employee Retirement Income Security Act, explains Morningstar.
To protect spouses, laws exist that mandate that a spouse receive his or her spouse’s assets upon the spouse's death. If there are minor children, laws dictate how much a surviving spouse gets and how much the children get.
Get an Attorney
The first step in contesting the beneficiary of an IRA is to hire an attorney who is experienced in wills and estates. This person should be familiar with inheritance disputes, including IRAs. Bring all documents you have available, such as the decedent’s will, the IRA document, any court papers you have and any correspondence you had with the decedent regarding the estate.
Once the attorney has reviewed your documents and agreed to take your case, he might immediately contact the courts to freeze the assets while you contest the beneficiary. This will give you time to get copies of relevant documents the beneficiary has and see any court rulings that have been made so far.
Learn Your Rights
Just because you are a spouse or child doesn’t necessarily mean you have a legal right to the decedent’s assets. For example, Bob sets up an IRA and names his daughter Lucy as his beneficiary. If Bob dies and leaves all of his assets to his brother in his will but he forgot to make that change in his IRA document, his brother doesn’t get the IRA assets; Lucy does.
In another example, Bob is married to Maria and names her as his beneficiary in his IRA document and his will. He divorces Maria and marries Staci, naming Staci as his beneficiary in his will but forgets to change his IRA beneficiary. On his death, his first (ex) wife, Maria, gets his IRA assets unless state or federal law specifies otherwise.
Your attorney will know what your rights are as a spouse, life partner, minor child or family member. When a person dies intestate (with no will), the courts often look to find the closest living blood relative.
If the IRA owner died intestate and had no immediate family members, other family members (like siblings, cousins or nieces and nephews) might step forward as blood relatives to claim the decedent’s assets. In addition, some beneficiaries might decide not to accept the assets, points out financial planning firm Ascensus.
Review the Documents
The owner of an IRA is allowed to name one or multiple beneficiaries of the account as well as contingent beneficiaries. These are people who inherit the IRA if the primary beneficiaries die before the IRA owner does and/or before she can change her will.
Find out if the IRA owner changed her will recently and have the signature verified if you believe the documents might have been forged. Your attorney will contact the attorney who created the new will (if one did) and any witnesses to the signing of the will, such as a notary public.
File Your Appeal
Once she has done her homework regarding your rights and your state’s laws and has reviewed all of the relevant documents, your attorney will submit your case to the courts. The beneficiary you are contesting will receive your filing and get a chance to respond. The judge will then hear both sides' counterarguments and make her decision.
- Always keep original copies of your evidence safe but have them accessible when in court.
Steve Milano has written more than 1,000 pieces of personal finance and frugal living articles for dozens of websites, including Motley Fool, Zacks, Bankrate, Quickbooks, SmartyCents, Knew Money, Don't Waste Your Money and Credit Card Ideas, as well as his own websites.