Taxable Transfer on Death

[HoleInTheAir]

All,

We lost a family member very recently and are having to go through the process of executing the will. Within the will, there was very clear specifications (percentages) on how the estate would be divided up, like the house and its contents.

The family member had an Individual Taxable (Transfer on Death) and Traditional IRA only. The Traditional IRA lists a specific beneficiary at 100%, but I can't seem to find one on the Taxable account. It just says the Holder is 'File, On', which I can't seem to interpret what means.

Based on my understanding (correct me if I am wrong):
- The IRA having a beneficiary supersedes the will and goes to that person alone and not based on the percentages defined by the will
- Without a named beneficiary on the Taxable account, it would just be dispersed according to the percentages defined by the will

We have a lawyer we'll be working with, but wanted to make sure I understood the process based on what I have read.

Thank you!

[dbr]

It can't possibly be that "File, On" is a last name, first name presentation of the words "On File"? Where would it be "on file"?

This is either a joke or someone may have messed this up?

[Silk McCue]

I would ask the institution if there was another document
On File for this Taxable account IRA that specifies a beneficiary.

In regards to the IRA you are correct that the beneficiary designation stands on its own and is not impacted by terms of the will.

Cheers

[HoleInTheAir]

Thanks for the responses.

No, it appears that in 2020 the IRA was switched from the 'Estate Of' to a named beneficiary.

For the Taxable, I found more documentation (like the annual tax documents) that just list beneficiary as 'On File', but the account profile doesn't have them named explicitly like the IRA. I am guessing the broker has that information on their side. I guess it is possible it is the same person as the IRA, or a different person.

Thanks

[HomeStretch]

Condolences for your loss.

Consider having the Executor contact the brokerage to definitively determine whether there is a beneficiary named (or not) for the Taxable account. Perhaps the family member had a custom beneficiary designation on file with the brokerage that can not be displayed online.

[PoundCake]

>> Without a named beneficiary on the Taxable account, it would just be dispersed according to the percentages defined by the will

If there's no named beneficiary on the taxable account, the contents of the account flow to the estate.

Depending on the value of the estate, that $$ may or may not go to the individuals named in the will. The deceased may have debts that require payment; those debts would need to be addressed before any money is disbursed to individuals.

[HoleInTheAir]

Condolences for your loss.

Consider having the Executor contact the brokerage to definitively determine whether there is a beneficiary named (or not) for the Taxable account. Perhaps the family member had a custom beneficiary designation on file with the brokerage that can not be displayed online.

Thanks - we'll be doing this on Monday.

In the Will, there were four named beneficiaries, with unequal portions, so it's possible doing it in that fashion on the website was not possible. The paperwork they have may mirror the percentages/beneficiaries (which included organizations) listed in the will.

[gavinsiu]

It's most likely that the decadant wanted to say on file in the beneficary, but when then entry was made the finanical firm interpret his input as first name "on" and last name "file". Since there isn't a name beneficiary, it will just flow to the estate, and get divided according to the will with all heira having to empty out their IRA in 5 years.

[HomeStretch]

Condolences for your loss.

Consider having the Executor contact the brokerage to definitively determine whether there is a beneficiary named (or not) for the Taxable account. Perhaps the family member had a custom beneficiary designation on file with the brokerage that can not be displayed online.

Thanks - we'll be doing this on Monday.

In the Will, there were four named beneficiaries, with unequal portions, so it's possible doing it in that fashion on the website was not possible. The paperwork they have may mirror the percentages/beneficiaries (which included organizations) listed in the will.

When the Executor calls the brokerage about the Taxable account, likely the brokerage will respond in one of two ways:
(1) if there are no named account beneficiaries, the brokerage will direct the Executor to complete the transfer form (with receiving Estate bank account information), provide appointment papers from the Probate Court and provide the account holder’s death certificate.
(2) if there are named beneficiaries, the brokerage will tell a non-beneficiary Executor that the Estate cannot claim the account funds. The brokerage probably won’t share the TOD beneficiary names. One or all of the beneficiaries will need to call the brokerage to start the claim process.

Regarding #2 - I was POA (on TOD accounts) or co-owner for my mom’s Fidelity accounts. When she passed recently, I notified Fidelity online and uploaded the death certificate. Their estate team rep contacted me by email. I provided the names, emails and addresses of the other TOD beneficiaries (my siblings) to the rep. Fidelity was great about reaching out to each to provide the claim form and for processing each claim form as received rather than requiring all claims to be submitted before processing. Not all brokerages will be proactive in initiating contact with TOD beneficiaries or willing to process claims individually.

[HoleInTheAir]

It's most likely that the decadant wanted to say on file in the beneficary, but when then entry was made the finanical firm interpret his input as first name "on" and last name "file". Since there isn't a name beneficiary, it will just flow to the estate, and get divided according to the will with all heira having to empty out their IRA in 5 years.

Thanks, I agree this is most likely.

The one without named beneficiaries is the Taxable account though. The IRA had one named beneficiary, and they receive 100%.

[HoleInTheAir]

Condolences for your loss.

Consider having the Executor contact the brokerage to definitively determine whether there is a beneficiary named (or not) for the Taxable account. Perhaps the family member had a custom beneficiary designation on file with the brokerage that can not be displayed online.

Thanks - we'll be doing this on Monday.

In the Will, there were four named beneficiaries, with unequal portions, so it's possible doing it in that fashion on the website was not possible. The paperwork they have may mirror the percentages/beneficiaries (which included organizations) listed in the will.

When the Executor calls the brokerage about the Taxable account, likely the brokerage will respond in one of two ways:
(1) if there are no named account beneficiaries, the brokerage will direct the Executor to complete the transfer form (with receiving Estate bank account information), provide appointment papers from the Probate Court and provide the account holder’s death certificate.
(2) if there are named beneficiaries, the brokerage will tell a non-beneficiary Executor that the Estate cannot claim the account funds. The brokerage probably won’t share the TOD beneficiary names. One or all of the beneficiaries will need to call the brokerage to start the claim process.

Regarding #2 - I was POA (on TOD accounts) or co-owner for my mom’s Fidelity accounts. When she passed recently, I notified Fidelity online and uploaded the death certificate. Their estate team rep contacted me by email. I provided the names, emails and addresses of the other TOD beneficiaries (my siblings) to the rep. Fidelity was great about reaching out to each to provide the claim form and for processing each claim form as received rather than requiring all claims to be submitted before processing. Not all brokerages will be proactive in initiating contact with TOD beneficiaries or willing to process claims individually.

Thanks - this is a smaller brokerage firm, so I doubt it will be proactive and on top of things as Fidelity.

One thing to note here - the executor is both POA and the 100% beneficiary of the IRA. I suspect this individual is a partial beneficiary of Taxable (probably in-line with the will), but hard to tell without speaking to the firm.

Thanks for the feedback and information.

[dbr]

It's most likely that the decadant wanted to say on file in the beneficary, but when then entry was made the finanical firm interpret his input as first name "on" and last name "file". Since there isn't a name beneficiary, it will just flow to the estate, and get divided according to the will with all heira having to empty out their IRA in 5 years.

Thanks, I agree this is most likely.

The one without named beneficiaries is the Taxable account though. The IRA had one named beneficiary, and they receive 100%.

One would usually assume that an actual beneficiary form implicitly if not explicitly requires the words in the entry to be the names of people. That is why I think someone goofed. But the question is when someone allowed the entry "on file" to appear there, where is the file where there are actual names. You will find out as soon as you have spoken to the broker.

[gavinsiu]

Well if the on file is taxable, then it will go to the estate and divided according to the will, though you said you are calling the firm to see if there are some other doc on file.

I don't think even the bigger firm would catch it. When you enter a beneficiary, the firm doesn't call them up to verify the information.You might not for example know the SS of the person you give it to.

[chemocean]

Condolences for your loss.

Consider having the Executor contact the brokerage to definitively determine whether there is a beneficiary named (or not) for the Taxable account. Perhaps the family member had a custom beneficiary designation on file with the brokerage that can not be displayed online.

Thanks - we'll be doing this on Monday.

In the Will, there were four named beneficiaries, with unequal portions, so it's possible doing it in that fashion on the website was not possible. The paperwork they have may mirror the percentages/beneficiaries (which included organizations) listed in the will.

When the Executor calls the brokerage about the Taxable account, likely the brokerage will respond in one of two ways:

(2) if there are named beneficiaries, the brokerage will tell a non-beneficiary Executor that the Estate cannot claim the account funds. The brokerage probably won’t share the TOD beneficiary names. One or all of the beneficiaries will need to call the brokerage to start the claim process.

Someone needs to send in the death certificate before any funds are distributed. I don't know how hard each custodian actively tries to contact each heir. Not all beneficiary forms have contact information. It is better if the heirs each contact the custodian, assuming they know the existence of the accounts. This condition lead to many investments being liquidated and send to the state unclaimed property department, with the ensuing development of third party entities identify such funds and making a commission identifying the heirs.

At Vanguard, I,as executor, was able to be informed only of the balance of the account as the distributions to the heirs progressed. When the balance reached zero, I know that the the estate could be closed. I was not told who the beneficiaries were and how much each received. This condition applied even if the Executor was a beneficiary. Under normal conditions, I don't think heirs can find out what other heirs got. I could receive information only on my distribution.

[RetiredAL]

Condolences for your loss.

Consider having the Executor contact the brokerage to definitively determine whether there is a beneficiary named (or not) for the Taxable account. Perhaps the family member had a custom beneficiary designation on file with the brokerage that can not be displayed online.

Thanks - we'll be doing this on Monday.

In the Will, there were four named beneficiaries, with unequal portions, so it's possible doing it in that fashion on the website was not possible. The paperwork they have may mirror the percentages/beneficiaries (which included organizations) listed in the will.

When the Executor calls the brokerage about the Taxable account, likely the brokerage will respond in one of two ways:

(2) if there are named beneficiaries, the brokerage will tell a non-beneficiary Executor that the Estate cannot claim the account funds. The brokerage probably won’t share the TOD beneficiary names. One or all of the beneficiaries will need to call the brokerage to start the claim process.

Someone needs to send in the death certificate before any funds are distributed. I don't know how hard each custodian actively tries to contact each heir. Not all beneficiary forms have contact information. It is better if the heirs each contact the custodian, assuming they know the existence of the accounts. This condition lead to many investments being liquidated and send to the state unclaimed property department, with the ensuing development of third party entities identify such funds and making a commission identifying the heirs.

At Vanguard, I,as executor, was able to be informed only of the balance of the account as the distributions to the heirs progressed. When the balance reached zero, I know that the the estate could be closed. I was not told who the beneficiaries were and how much each received. This condition applied even if the Executor was a beneficiary. Under normal conditions, I don't think heirs can find out what other heirs got. I could receive information only on my distribution.

I recently went through this with my Dad's IRA at Schwab and Life Insurance at Navy Mutual. Both required all bene's ( just my sister and I ) to have completed paperwork from everyone in place before any disbursement would occur. I supplied the Death Cert. Having managed my Dad's affairs for years, there were confirmed copies of the beneficiary forms in with his Estate Documents. I believe both places asked if I knew who the bene's were and if I knew their contact info, so they could proactively mail out the needed forms. Both processed smoothly and quickly.

[HoleInTheAir]

Just in case anyone was curious how this played out - the beneficiary on the taxable was the same as the IRA. I don't understand why it didn't just list that in the Account Profile section for the site, but oh well.

[CAsage]

So you won't need to probate that will or hire a lawyer since there are now no assets? I hope that is ok with all the now-forsaken heirs and family. It's rough when there are conflicting documents. Did a lawyer prepare that will and decedent ignore it? Strange outcome.

[Silk McCue]

Thanks for the update. Glad it’s resolved.

Cheers

[HoleInTheAir]

So you won't need to probate that will or hire a lawyer since there are now no assets? I hope that is ok with all the now-forsaken heirs and family. It's rough when there are conflicting documents. Did a lawyer prepare that will and decedent ignore it? Strange outcome.

The IRA and Taxable are not a part of the estate.

The estate will encapsulate the house, its contents, and a vehicle. All of that will be divided based on the will. So it's just the investments that were excluded from this portion. So there will be entities that get a portion from this, but will get nothing from the investments.

[CAsage]

So you won't need to probate that will or hire a lawyer since there are now no assets? ...

The IRA and Taxable are not a part of the estate. The estate will encapsulate the house, its contents, and a vehicle. All of that will be divided based on the will. So it's just the investments that were excluded from this portion. So there will be entities that get a portion from this, but will get nothing from the investments.

They are not part of the probate estate, but in some states total assets on date of death are considered for estate taxes. So, yes, part of estate that just happens to pass outside of probate.

[PaunchyPirate]

Right. The OP needs to make sure they understand any STATE inheritance tax or estate taxes that apply. In Pennsylvania, both the IRA and taxable account balances are subject to inheritance tax even if they are freely distributed to named beneficiaries outside of the will. But not all states do this, for sure.