An inherited IRA will pass to beneficiaries under the terms of the contract the account owner has signed with the IRA custodian. Such a contract typically overrides anything spelled out in a will or a trust. Thus, a simple mistake on this document can ruin your entire estate plan.
What’s more, IRA custodians generally are governed by state law, in terms of the contracts into which they can enter. That’s especially true with banks and credit unions, which act as IRA custodians for millions of Americans.
If you plan on opening an IRA with your local bank, for example, remember that you’ll be dealing with bank personnel. The person opening your account might be a new employee, one who was working at a retailer just a few weeks earlier. Therefore, although you can hope for the best, you must realize you may be working with someone who literally doesn’t know a primary from a contingent beneficiary.
The better prepared you are, the more likely you’ll wind up with a satisfactory arrangement. Know exactly how you’d like your IRA to be distributed, at your death.
