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Life Health > Life Insurance

RAAs Not So Bad, Attorney Argues

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A New York insurance lawyer contends that insurers are being “demonized” for issuing retained asset accounts.

The problem of how deceased persons’ assets are to be handled is common to the banking-thrift and broker-dealer industries as well as life insurance, says Marc Tract, a partner at Katten Muchin Rosenman, in an interview with the National Underwriter.

Tract’s comments were aimed at a draft law, known as the “Beneficiaries’ Bill of Rights,” proposed this week by the National Conference of Insurance Legislators. That proposal would impose strict standards and continuing oversight of RAAs by states.

The problem with the criticism and probes by various officials and congressional committees is that restrictions on RAAs alone would create an uneven playing field, Tract says.

To maintain a level playing field with other providers of services to beneficiaries and to give uniform protections to consumers, “I would advocate that perhaps a better solution than the one proposed by the Bill of Rights would be to look at what would be the minimum standards for banks, brokerage firms and insurers with respect to the disposition of assets post-death.”

He also proposes development of a regulatory regime that would protect consumers, “while not creating the impression that one form of asset was inherently more risky or prone to overreaching than another.”

Tract says he has no clients on the RAA issue.

He points out that when a depositor or an account owner in a bank, thrift or a brokerage firm dies, and their account was not specifically subject to a testamentary bequest, it will typically be transferred to the executor under a will (or to a court-appointed administrator if a decedent dies without a will), or to a specific person, if subject to an explicit bequest.

The executor, administrator, or the beneficiary must then give further instructions to the bank or brokerage firm to again transfer the assets in the account to liquidate them and realize the cash value, Tract says.

“In other words, the beneficiary of an estate is made to go through a number of steps, during which market values can fluctuate, and fees can be charged, before the assets of a deceased account owner are returned to the beneficiaries designated by that person,” Tract said.

“This is similar to the situation faced by life insurance beneficiaries,” he said.

Customers of banks-thrifts and broker-dealers are protected by the Federal Deposit Insurance Corporation or the Securities Investors Protection Corporation, Tract notes.

“Although the regulatory protections afforded by the FDIC and SIPC differ in nature and kind from the protections afforded life insurance beneficiaries by state guaranty funds, the functions of the FDIC and the SIPC are similar to the role played by guaranty funds in protecting consumers,” Tract said.


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