IRA BENEFICIARY NOT CHANGED BY WILL
In the estate litigation case of Estate of Sipos, PICS Case No. 15-0961 (C.P. Philadelphia March 9, 2015) the Honorable John W. Herron ruled that the beneficiary designation in the deceased’s IRA was not changed by his will as there was no demonstration that he had made reasonable efforts to comply with the policy terms governing change of beneficiary. Request for order directing the proceeds to be turned over in accordance with the will denied.
Kenneth Sipos died in July 2012 at the age of 72. His 2011 will named his brother, David Sipos, executor, and designated David to receive a Prudential Savings Bank IRA retirement account. However, in 2009, Kenneth had executed a Prudential form designating William Horton as primary beneficiary of the IRA.
In April 2013, Horton filed a petition seeking an accounting, which David prepared. Horton filed objections challenging: (1) the inclusion of the IRA as a probate asset; (2) the claim of Russell Force for repayment of $16,360.55 in loans to Kenneth; and (3) the proposed sale of real property devised to Horton.
Force had been Kenneth’s life partner for 20 years but at the time of Kenneth’s death, they were just friends. Kenneth lived with Horton from 2005 until a few weeks before his death. Horton was Kenneth’s caretaker, except for periods when Kenneth had to go into healthcare facilities. Force testified that he loaned Kenneth the money for those stays.
About a month after Kenneth’s death, Horton cashed in the IRA and paid taxes on it. In September, David, as executor, sent a letter to Prudential requesting the value of all accounts as of Kenneth’s death. Prudential listed the IRA in trust for Horton.
The court said that under long-standing Pennsylvania precedent, as a matter of general principle, a person who sought to change the beneficiary of an insurance policy had to follow the procedures in the policy. However, when the policy holder had made every reasonable effort to effect a change of beneficiary, the change would be given effect in order to implement the insured’s intent. Subsequently, the court applied that precedent when considering whether the beneficiary of a retirement IRA could be changed by a will, examining the facts to determine if a decedent had made a reasonable effort to comply with the policy provisions.
The court said the IRA at issue provided that “you may revoke or change the beneficiary designation at any time by completing a new Beneficiary Designation form and providing it to the trustee/custodian.” No evidence was proffered that Kenneth had submitted a change of beneficiary form to Prudential. Thus, despite Horton’s unrebutted testimony that Kenneth was mentally well in the year preceding his death, he never contacted Prudential to change the beneficiary designation.
The court also said that the procedural posture of the case weighed against finding that the IRA beneficiary had been changed. David did not make a demand for the assets under the IRA. Rather, it was through Horton’s objections, and not an active pursuit by the executor, that the issue of the IRA arose.
The court concluded that the beneficiary was not changed by Kenneth’s will as there was no demonstration that he had made reasonable efforts to comply with the policy terms.
As to the loan, the court said that the accountant and Force had carefully documented his claim with copies of checks, the majority of which were made payable to healthcare facilities. Force also testified credibly that the checks were loans for which he expected repayment. Horton conceded that he had no basis for asserting that Force had given the money as a gift but even if the presumption of a valid gift had been established, the court said it was rebutted by Force’s credible testimony.
Finally, the court found that the exact amount of the estate’s debts had not been determined. It therefore ordered that accountant to present an amended account outlining the debt so it could be determined whether sale of the property was necessary.
Reference: Digest of Recent Opinions, Pennsylvania Law Weekly, 38 PLW 590 (June 23, 2015)
Filed Under: Trusts & Estates; Estate Litigation; IRA Beneficiary; Will Litigation
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