Estate Question Re: Irrevocable Trust Ownership of Annuity

[LWM]

Greetings,

Client registered annuity (2001) for her irrevocable trust to own the annuity and govern the beneficiary payments.

Two insurance companies re-registered annuity contracts under the irrevocable trust and changed the tax ID to the trust ID.

They did not change/update the beneficiary nor did they notify the trustees of the trust to change the beneficiary.

Both companies received a copy of the trust.

Client died...trustees submitted death claim...insurance companies acknowledge the trust, will tax the trust for distribution, but will not recognize the trust beneficiaries.

Is there a way to convince the insurance companies that the trust owns the annuity contract and therefore, distributions are made to the trustees?

If my question confuses you, please PM me.

Thanks much for your reply and help.

 

[scagnt83]

What do you mean they "re-registered" annuity contracts under the Trust? Do you mean that new annuities were purchased and placed in the Trust?

 

[ccbaxter]

To make sure I understand: Trust owned annuity. (Whether written that way or by transfer of ownership is irrelevant.) Intent had been to change beneficiary designation to the trust, but this was not done.

It is a complicated question with all sorts of legal and tax implications, but the bottom line is this: It is unlikely in the extreme that the death benefit is going to be paid to anyone other than the beneficiary or beneficiaries as named. It is not an insurance company's job--nor do they want to assume the responsibility for--trying to discern intent.

If it's a larger company with in-house legal, start there. If it's a smaller company that uses outside legal, you'll probably have to start with the head of the department handling claims. Do you have the cooperation and consent of the named beneficiaries? That's a must. Be prepared to hear no. You're likely to get a more sympathetic hearing if a company agent screwed up as opposed to the owner or their adviser or attorney.

Did I mention: Be prepared to hear no.

 

[LWM]

What do you mean they "re-registered" annuity contracts under the Trust? Do you mean that new annuities were purchased and placed in the Trust?

Answer:
mitt
When the trust document was submitted to the insurance company, the ownership of the annuity changed from the individual to their family trust.

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No effort is made to enforce the trust document without agreement of the beneficiaries.

This is a legal question; I asked to determine if anyone has a similar experience.

We will continue our legal initiative to resolve the question.

Thanks for your reply.

 

[scagnt83]

Answer:
mitt
When the trust document was submitted to the insurance company, the ownership of the annuity changed from the individual to their family trust.

----------

No effort is made to enforce the trust document without agreement of the beneficiaries.

This is a legal question; I asked to determine if anyone has a similar experience.

We will continue our legal initiative to resolve the question.

Thanks for your reply.

Changing Ownership of an Insurance Contract does not change the Beneficiary of an Insurance Contract. The problem is that the Trust was made Owner but not Beneficiary as well.

There are 5 separate Persons (in the legal sense) who participate in an Insurance Contract:

1. Insurance Carrier

2. Insured

3. Owner
- The Owner has legal control of the policy. They decide who the Beneficiary is, what policy options/benefits to exercise and when, how much to pay or when to pay (if flexible payments), etc.

- The Owner IS NOT automatically the Beneficiary. The Owner decides who the Bene is, but the Bene must be specified separately by the Owner. If no Bene is listed, the Benefits are paid to the Insureds estate.

4. Beneficiary
- Must be specified by the Owner and listed with the Insurance Carrier PRIOR to the benefit payments being triggered. Once benefits are payable the Beneficiary is not legally allowed to be changed.

5. Payor
- The Person or entity that pays the Premiums. Usually the Owner, but not always.


So just because Ownership was legally changed, that does not change the Beneficiary. Changing the Beneficiary is a separate action that must be taken by the new Owner after obtaining control of the policy. So once the Trust Owned the policy, they should have filed a Change of Beneficiary form with the carrier to change the Beneficiary to the Trust. Someone dropped the ball and it was not the insurance carrier.

 

[ccbaxter]

Without having access to the insurance company file, it's impossible to say what happened. It may be the insurance company screwed up. For example, if an ownership and beneficiary change was submitted, but only the ownership was completed. In that case, it's not a big deal--they would just correct the clerical error. However, if no beneficiary change was ever requested, or if someone requested some ambiguous request (ie. "re-register this annuity") then things become more problematic. At least in that situation, you could argue that the insurance company had an obligation to clarify meaning rather than assume meaning.

For the record, I handled home office claims. These situations, unfortunately, are not uncommon.

Generally, the safest response is "no" so that tends to be a knee-jerk, all purpose response. However, if there is documentation tending to substantiate a position, that can be taken into account. Barring that, as long as the beneficiaries (assuming natural persons) are okay with it, generally it can be corrected, but that depends on a number of legal factors, including the state code governing.

The biggest problem is frequently the tax code and the IRS--and nobody wants to tangle with them. It may require requesting a ruling. I've seen situations where it looked like everything was cool and the IRS derailed things.

Basically, it's just another problem that will need to be ironed out. It may go one way, may go another. LWM, the basic idea is just to make your best case and get the file out of the clerical ghetto so it can be reviewed by the real decision makers as quickly as possible.