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Beneficiaries' rec'd $500,000 in Yr 2013 & not told it was from a 401-K Plan until Yr 2014. Recourse?

Troy, MI |

Beneficiaries cannot roll-over that money now, thus it is Taxable with Penalties. What recourse do MICHIGAN Beneficiaries have with the TEXAS Lawyer that did this, let alone the IRS? A Schedule K-1 (Form 1041) was just received last week to be included in Yr 2013 taxes.

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Attorney answers 3

Best Answer
Posted

I think you'll have to pay taxes on the money to avoid penalties. But the question I have is that if the beneficiaries had control over this account, why was a distribution made? Was there a provision in someone's will to do this? Or is it that the attorney and brokerage firm just distributed the money on their own? The money should have been rolled over into IRA accounts or the like for the beneficiaries. You may have a cause of action against the broker/dealer that handled the 401(k) plan and the administrator, but you will have to discuss the facts in full with counsel. This would appear to be a pretty complicated matter.

The foregoing is not legal advice nor is it in any manner whatsoever meant to create or impute an attorney/client relationship.

Posted

I agree with Mr. Cornish that this is a complicated matter. I do not think you will be able to figure this out online. I believe you are going to need to review all of the facts of the situation with a tax lawyer. There is likely no recourse with the IRS. The issue is whether the distribution was proper and whether the lawyer had a duty to explore other options with the beneficiaries that might have resulted in lower taxes. You may find after investigating this that there were no other options.

James Frederick

***Please be sure to mark if you find the answer "helpful" or a "best" answer. Thank you! I hope this helps. ***************************************** LEGAL DISCLAIMER I am licensed to practice law in the State of Michigan and have offices in Wayne and Ingham Counties. My practice is focused in the areas of estate planning and probate administration. I am ethically required to state that the above answer does not create an attorney/client relationship. These responses should be considered general legal education and are intended to provide general information about the question asked. Frequently, the question does not include important facts that, if known, could significantly change the answer. Information provided on this site should not be used as a substitute for competent legal advice from a licensed attorney that practices in your state. The law changes frequently and varies from state to state. If I refer to your state's laws, you should not rely on what I say; I just did a quick Internet search and found something that looked relevant that I hoped you would find helpful. You should verify and confirm any information provided with an attorney licensed in your state. I hope you our answer helpful!

Posted

I agree with Mr. Cornish and Mr. Frederick.
I cannot imagine a legal theory that would prevail against the IRS. (Or the State of Michigan, which is also probably entitled to tax the proceeds.
Generally, most plan administrators work hard to let beneficiaries know of their choices, so elections can be made in a timely manner.
If you want to review the actions of the Texas lawyer, I suggest you retain a Texas lawyer for that purpose.

I am licensed to practice law in Michigan and Virginia and regularly handle cases of this sort. My answering your question does not establish an attorney-client relationship. You should consult a lawyer so you can tell the lawyer the entire situation and get legal advice that is precisely tailored to your case.

Asker

Posted

Thank you for reminding me a Texas lawyer would be required.

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