Bob, as we’ll call him, told his IRA custodian that he wanted to name his wife as the primary beneficiary and their daughters as the backup beneficiaries. However, the custodian provided a form where no backup beneficiaries were named. Despite this mistake, Bob signed the beneficiary form.
After Bob’s death, his wife died a short time later. Her estate stepped aside so the IRA could pass to the contingent beneficiaries. However, because of the faulty form, there were no backup beneficiaries and the chance for long-term tax deferral seemed likely to be lost.
However, a court revised the beneficiary designation after Bob’s death so that his daughters were the backup beneficiaries of the IRA. Then the IRS accepted the court-ordered revised form, permitting the daughters to take minimum distributions over their life expectancy, extending tax deferral.
Significance: Although a private ruling is not binding, this was the first time that the IRS has accepted a court-ordered revision of a beneficiary designation form, after the IRA owner’s death. If you are in a similar situation, you may hope for relief from a court and from the IRS. Similarly, the IRS might accept court proceedings to establish a designated beneficiary if the IRA provider has lost the form or where the IRA owner died before beneficiary instructions were carried out.
