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Summary Judgment

  • IRS

Madness Over IRAs and the Patriot Act

Nov 30, 2018 | by William Perry Pendley

Today, some of the nation’s biggest brokerage houses, banks, and financial institutions are withholding money that generous benefactors willed to charities. Why? 

As everyone knows, an Individual Retirement Account (IRA) is a savings account that assists people in providing for retirement while offering tax advantages. For the nonprofit world, on the other hand, an IRA presents an opportunity for supporters to leave the IRA, not to family beneficiaries who face substantial income taxes from the inheritance, but to a charity that can receive it tax free. Thus, on the IRA’s owner’s death, the charity submits a “beneficiary form”—furnished by the IRA administrator—with the name and taxpayer identification number of the charity and perhaps a corporate resolution that the signatory has authority to act for the charity, and a copy of the death certificate. In 60-days, a lump sum payment is made to the charity to fulfill the wishes of the deceased. 

In recent years, however, many well-known IRA administrators (such as Fidelity, Charles Schwab, Ameriprise, and Vanguard) advised charities that they must create an “Inherited IRA,” often called a Stretch IRA or a Beneficiary IRA, in order to receive the bequest. (An Inherited IRA is an effective mechanism for the deceased’s family or other beneficiaries to receive the IRA without owing taxes on a lump sum payment. Moreover, this service creates a profit-making opportunity for the administrator, which is sensible and unobjectionable.) Unfortunately, these administrators, contrary to law and to the instrument itself, order the charities to create an Inherited IRA. Even worse, they demand that, because the charities are creating a “new account” for a “new customer,” they must comply with the Patriot Act—what provision they do not say—by providing personal, highly sensitive, and unnecessary information regarding, not the charity, but its employees! 

Thus, for example, some administrators demand the name, home address, home telephone number, Social Security number, driver’s license number, and net worth statement of the charity’s directors, officers, and even low-level administrative employees. Remember, it is the charity that is the IRA beneficiary, not the individuals whose personal information is demanded by the administrator. In fact, all the administrator should be seeking and to which it is entitled is the nonprofit’s tax identification number, not personal, private, and sensitive information regarding directors, officers, and employees. It is not surprising, therefore, with national news on the data breaches at large corporations such as those represented by these administrators, that people subjected to these demands fear identity theft and with it the months and even years of heartache they will endure. 

The intrusive and unwelcomed probing by these administrators into the lives of people who seek only to perform their charitable work thanks to the generosity of those who support that activity is bad enough. After all, are we not subjected to enough intrusion every time we seek to board an aircraft? Worse is the arrogant and officious way these administrators, who hide behind the Patriot Act, make their demands. “Just do the paperwork and you’ll get your money faster than if you ask so many questions.” Even after meeting these Draconian demands, however, and creating a new account, which is not required in the first place, the charity’s funds are not paid quickly. Instead, it still takes months and yes, even years, for the charity to receive what the deceased intended. 

It is not just that charities are being subjected to this abuse, that their employees are being forced to disclose personal information, and that they face months and even years getting promised funding. It is that they are not able to do the good that their benefactors intended. Surely, long dead owners of these IRAs must be rolling over in their graves! IRA owners who are still living should contact their administrators and demand to know if they are one of these bandits and, if so, remove their IRAs from their clutches.

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