What You Need to Know
- An inherited Roth IRA is at the center of a dispute after a client requested a beneficiary change days before dying.
- Schwab, the custodian, filed a complaint to prompt the parties to litigate the matter.
- The case can serve as a reminder to advisors about the importance of updating beneficiary designations.
A dispute over the inheritance of a Roth IRA held with Charles Schwab & Co. may serve as a reminder of how important it is for investors to keep up to date on their desired beneficiary designations.
The financial services giant has asked a federal court in Wisconsin to require the two parties with claims to the retirement account to litigate the matter between themselves and relieve Schwab of liability.
The company laid out details in late June in its “interpleader complaint,” a legal action in which a party holding property it doesn’t own sues to prompt those claiming ownership to litigate the matter.
Schwab client Charles J. Hayes, while living, owned a Roth IRA, recently valued at roughly $38,300, that listed a sister as the only beneficiary, the filing says. On Jan. 21 this year, nine days before he died, Hayes called Schwab and asked to change the beneficiary, according to the complaint.
The company asked Hayes to fill out paperwork online or in writing before it would process the request, a standard Schwab policy applicable to all account holders, Schwab said in the complaint.
When Hayes died on Jan. 30, he hadn’t completed the required paperwork to change the beneficiary, and so his sister remained the sole beneficiary, according to the complaint. Schwab created an inherited IRA in her name and transferred the funds from Hayes’ account, it says.
In May, Schwab received a letter from a lawyer representing Hayes’ estate asserting the estate was entitled to the proceeds and that it intended to pursue legal action if the financial services company didn’t send the funds to the estate’s personal representative or to a trust account in the lawyer’s name.