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What type of ruling would be needed to allow a fund company to honor a more recent will over an older beneficiary designation?

Raleigh, NC |

In his will, my dad designated my brother and I as beneficiaries of his traditional IRA account. On the beneficiary designation of the account itself, 'the estate' was listed as beneficiary. This was done long before his final will was done in 2011. Because of this, my brother and I are being forced to take accelerated distributions and deal with much higher taxes than if we had been individual beneficiaries of the account, as our father intended. He either just didn't remember doing the 'estate' beneficiary designation on the account or didn't realize the tax implications of it for his heirs. I realize that the account's beneficiary designation over-rides the will, but was wondering if relief could be gained via some type of court or IRS ruling. If so, what would be best way to go?

Attorney Answers 2

  1. The beneficiary designation trumps the language in the will. Even if it was your dad's intent that you receive this money as individuals, since the estate was listed as the beneficiary on the actual IRA, the IRA became a probate asset. Instead of being able to take the money incrementally over your lifetimes, the payout will be immediate, causing unwanted tax consequences.
    Your dad is not alone in making this error. Everyone reading this needs to check their IRA beneficiaries. I've seen money go to ex-spouses, parents instead of spouses, siblings instead of children and every other permutation that's possible. People tend to fill out these forms when they open an account or start employment and never revisit them.

  2. The IRA beneficiary designation will control what happens to the IRA funds. Once the IRA fund are paid to the estate, the designations in the Will then will determine what happens to the funds.

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