Home' Island Sun : ISN 110615 Contents 20B ISLAND SUN - NOVEMBER 6, 2015
Much of what happens in life seems almost automatic,
doesn’t it? We drive the same way to work every morn-
ing by default. My wife and I shop at the same grocery
store by default. Our computers have default settings for every-
thing from which printer is first used to the software settings
for our most popular programs.
But sometimes, letting the “default” happen isn’t so good.
Especially with traditional Individual Retirement Accounts (IRAs).
Suppose that you completed your IRA beneficiary designation
naming your spouse as the primary beneficiary. But you never
named a contingent (secondary) beneficiary, assuming that your children, would, by
default receive the account the same way Edna would have since they are named in
I had just that situation occur with a recent client. “Paul” named his wife, “Edna,”
as the primary beneficiary to his IRA account but never named a contingent benefi-
ciary. Unfortunately, Edna predeceased Paul. He never thought to update his IRA ben-
eficiary designation to their children. Then Paul died.
Paul and Edna’s children assumed that they would simply inherit Paul’s IRA and
be able to create “Inherited IRA” accounts that would stretch the Required Minimum
Distributions (RMDs) over their respective lifetimes. Except that’s not exactly what hap-
The financial firm holding the account explained that when no beneficiary is
named, the IRA custodial agreement governs who the beneficiary will be. Like many
financial firms, when no beneficiary is named, the account owner’s estate by default
becomes the beneficiary. Although the children were the beneficiaries of Paul’s estate
because he named them in his will, they could not stretch out the IRA distributions
over the course of their lifetimes.
Stretching out the IRA distributions is beneficial because it continues the tax
deferred growth, which results both in income tax savings and powerful growth
through compounded interest.
You may wonder what a custodial agreement is. Every IRA account has one. The
financial firm must have a custodial agreement that meets certain IRS requirements to
qualify the account for tax deductions and deferrals granted to IRA accounts under the
federal tax code. The custodial agreement is that multi-paged printout on onion skin
paper that you received when you opened your IRA account. Among many of the
provisions in the agreement, it dictates who your IRA beneficiary will be should you
not name one. Typically, the beneficiary will be your estate.
When your estate is named as the beneficiary, the IRS rules say that no tax deferral
will occur because the estate is not a person whose life can be measured. So even if
your children are the beneficiaries of your estate (as was the case in Paul’s estate), the
estate must recognize all of the untaxed income inside of the IRA in the year following
the account owner’s death.
Considering that Paul had several hundred thousand dollars inside of the IRA,
the resulting highest marginal 40 percent tax rate decimated it. Moreover, since the
proceeds would be distributed to the children who resided in states that levied a state
income tax, even more was lost. To add insult to injury, all of the tax deferred growth
that could have occurred had the children been able to stretch the IRA distributions out
over the course of their lifetime was lost.
So here, the default provisions found in the typical IRA custodial agreement caused
adverse tax and financial consequence.
Avoiding this situation is easy. All you must do is ensure that your IRA beneficiary
designations are up to date and include those individuals who you wish to inherit the
balance of your IRA in the event of your passing. In Paul’s case, had he completed his
IRA beneficiary designation naming his children as the contingent beneficiaries, even
though Edna died before Paul, his children would have by default become the primary
beneficiaries and the situation would have worked out just fine.
Sometimes this situation happens because a family’s financial advisor changes
firms. The IRA account migrates with the financial planner to the new firm, and the
client either never signs a new beneficiary designation or doesn’t complete all parts of
the new form. So if you have followed your financial advisor from one firm to another,
it’s always a good idea to double check the IRA beneficiary designations to ensure that
they are complete and accurate.
Otherwise, the fault with default could end up costing your loved ones dearly.
©2015 Craig R. Hersch. Learn more at www.sbshlaw.com.
The Fault With Default
by Craig R. Hersch, Florida Bar Board Certified
Wills, Trusts & Estates Attorney; CPA
Goss, Bendeck Join Foundation Board
Chauncey Goss and Juan D. Bendeck have joined the Southwest Florida
Community Foundation’s board of trustees.
Goss was raised in Southwest Florida with a deep interest in the community
and public policy. He has enjoyed a rich and varied career that ranges from being the
executive director of a small, influential nonprofit in Southwest Florida and working for
the President’s Office of Management and Budget to becoming the deputy staff direc-
tor of the House Budget Committee under Paul Ryan and starting his own firm locally
that provides budget forecasting and analysis. Goss received his bachelor’s degree
from Rollins College and a master’s in public policy from Georgetown University. He
serves on the Sanibel City Council, where he is the council liaison to the Planning
Commission and the Horizon Council.
In addition, Goss is also chairman of the board of trustees for The Canterbury
School in Fort Myers and sits on the boards of the Sanibel-Captiva Conservation
Foundation, the United Way of Lee, Hendry, Glades and Okeechobee, the Lee Coast
Chapter of the Military Officers Association of America Foundation, the Freedom and
Virtue Institute, and the Main Street Growth Project. He is a member of the Sanibel-
Captiva Kiwanis Club and the Sanibel Community Church.
Bendeck is a partner with the Naples law firm, Hahn & Loeser. He focuses his
practice in estate planning, estate administration and asset protection planning. A
longtime resident of Southwest Florida, he is actively involved in the community and
is a member of the Florida Gulf Coast University Planned Giving Committee, the
Conservancy of Southwest Florida Planned Giving Committee, and the Council of
Hispanic Business Professionals. Bendeck also serves on the board of directors of
Goodwill Industries of Southwest Florida, Inc. and the Florida Humanities Council. In
2008, he was chosen as one of Gulfshore Business magazine’s 40 Under 40. Born
in Spain, Bendeck is fluent in Spanish.
For more information about the Southwest Florida Community Foundation, call
274-5900 or visit www.floridacommunity.com.
Juan D. Bendeck
From page 1B
Know The Signs
a whole battery of tests, no other prob-
lems were found. Unfortunately, the
whole ordeal had weakened my heart
significantly to the point that the doc-
tors suggested I consider a defibrillator.
A healthy heart has an Ejection Fraction
of 50 or more. At the time of my hos-
pitalization, my EF was at a 10. It’s still
only at 20, but I want to give good diet
and exercise a chance before undergoing
another surgery. Lisa and I were trying to
eat healthy and exercise more before all
this. Now it’s not really an option. We eat
healthier and I exercise regularly now. It’s
been a life-changer.
I don’t want anyone to feel bad for
me. There are a lot of people that have
been through far worse than I have.
Thanks to a great team of doctors and
nurses in the cardiology department, I’m
What I want you to remember is know
the signs. It’s not always as obvious as
chest pains. Every one of my symptoms
could have been explained away as some-
thing else. I guess I was doing just that.
I didn’t want to face the fact that it was
my heart. Light headedness, dizziness,
shortness of breath, inability to sleep
lying down, and unexplained weight gain.
These were all signs of my heart failure
that I didn’t know at the time. Now I
know. Knowing can save your life.
The work of the American Heart
Association focuses a great deal of effort
on educating all of us to know the symp-
toms of heart attack and stroke. The care
I received at HealthPark – which uses
many of the guidelines established by
AHA – is the reason I am still here. I am
grateful to Lee Memorial Health System
which is the Lee County Heart Walk
sponsor and to Sanibel Captiva Trust
Company, which has been a consistent
supporter of the Sanibel-Captiva Heart
This year’s San-Cap Heart Walk
will take place on January 31, 2016
starting at 1 p.m. at the intersec-
tion of Tarpon Bay and Island Inn
roads. For further information, con-
tact Kelly Goodwien at Kelly.good-
email@example.com or register online at
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