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Proper Planning is “Fund”emental

“For whatever reason, Trowbridge never deleted the ex-wife as the named beneficiary in the IRA account. Given all the known facts and circumstances, this seems to be a classic oversight.”

To anyone who has been willing to listen to me they have heard my firm's promise more than once: "your dreams, our knowledge… creating estate plans that work." Well here comes just one more story of why proper planning can set your estate, your assets, and your family in line for a smooth transition but improper or incomplete planning can bring untold hardship, especially if the matter ends up in court. Courtesy of Bill Singer’s blog through Forbes, here’s another sad story to add to the file of otherwise avoidable legal woes. The entire story and Singer’s commentary are worth reading, but in essence it is the story of Financial Industry Regulatory Authority (“FINRA”) Arbitration 10-02435 (May 9, 2011), or the shortsightedness of one Newman Trowbridge, Jr., Esq.

Mr. Trowbridge opened an IRA in 1994 and named his then wife as beneficiary of the account. Then two things happened: (1) his IRA was taken over by Capital One and his account was reassigned to a new broker (Rick Schenck, Sr.) and (2) he and his then wife underwent what was apparently a terrible and protracted divorce. Mr. Trowbridge later re-married, put his life back together, and continued with his IRA with gusto (he quadrupled the balance) until he suddenly and tragically passed in 2009. At that time, Trowbridge’s estate went to his wife along with all the various accounts for which he named her as beneficiary, but the IRA went to his ex-wife. The story is familiar and you probably saw it coming, but Trowbridge had failed to reassign the beneficiary of his IRA and it has remained under his first wife.

Unfortunately, the story doesn’t end there since the recent widow had attempted to reclaim the IRA. She went so far as to present the broker with a court order stating that all accounts that make up the decedent’s estate must be transferred to the heirs of the decedent, but that didn’t work since the IRA isn’t a part of the estate to begin with. The broker defaulted to the named beneficiary, or the ex-wife. In response the widow tried suing on counts of negligence, amongst other things, since the broker had not carried out his duty by advising the late Mr. Trowbridge to rename his beneficiary. The suit is why this is the story of FINRA Arbitration 10-02435, and why it is all the more bitter since the widow lost the suit and it was held that the broker did his job (the case was even removed from his record.) Instead, the FINRA arbitration placed the blame squarely on Mr. Trowbridge, adding insult to injury since, we can presume and the court admitted, he probably didn’t intend to hand the IRA over to his ex-wife.

The lesson is three-fold. Firstly, you must adapt your plans whenever you undergo a life-change, like renaming beneficiaries after divorces and marriages. Secondly, planning is about making sure your affairs are in order before those plans are needed, that is, fully fleshing out your plans early so an unexpected death doesn’t keep you from finishing the most important details. Working with an estate planning law firm that will help you "fund" your trust and review your beneficiary designations with you is essential. Finally, it’s a pretty tricky world when you try to undo the damages of incomplete or poor planning, and often an unforgiving one for your surviving family members and loved ones.

Reference: Forbes.com (May 17, 2011) “Estate Sues Over Lawyer’s Designation of Ex-Wife as IRA Beneficiary

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