3 Simple Steps to Avoid IRA Inheritance Disputes

Lisa knew no money had been contributed. “My father’s IRA was accumulated prior to his marriage, which classifies it as separate property under community property laws,” she wrote in one of her letters to the bank. But Wells wouldn’t budge. “WFA policy to obtain spousal consent is born out of risk mitigation, more than a strictly legal requirement,” Wells Fargo Advisors responded. In other words, it was covering its you-know-what. Institutions commonly freeze accounts when disputes arise, says IRA expert Ed Slott: “They say, ‘Whatever the courts decide.’ ”(Wells Fargo said later that seeking spousal consent in a community property state “is for the purpose of protecting and preserving client assets and is consistent with industry standards and applicable state law.”)

Should Lisa have done anything differently? Not really, say Gee and Slott. But let me take the opportunity to give you some tips for minimizing your own beneficiary quagmires.

1. Name beneficiaries in the first place. Many people simply don’t. In that case, if you have a will, it takes precedence. If, like most older Americans, you don’t have a will, the state will decide who gets your money.
2. Update forms annually and upon major life events. Divorce is the biggie, Slott says. That can lead to an ex-spouse inheriting — often not the intent. To remedy this, more than two dozen states have passed “revocation upon divorce” laws nullifying exes’ status. If you do want your ex to get the money, sign another beneficiary form after your divorce is final.
3. Keep tabs on your financial institution. If it’s acquired or merges, redo, or at least check, your forms. Such deals have resulted in multiple beneficiary snags, Slott says.

The Outcome

Shortly after contacting me, Lisa told Wells Fargo she had taken her case to the media. Suddenly, the bank took action. Last December, eight months after Lisa first claimed the IRA, Wells Fargo released the funds. I’m not going to take credit for this victory. But Gee isn’t mincing words: “It seems it should have been a lot quicker to me.”