Having a properly drawn up power of attorney (POA) for a solo 401k plan or IRA is important in order to continue preserving the retirement account funds upon death.
In 2015 two court cases in the Surrogate’s Court, Nassau County, New York had opposite outcomes.
In one case, no additional document was attached to the POA. A niece was named as beneficiary of a bank account under a POA. The Surrogate’s Court held that the POA’s agent could not authorize the beneficiary to receive the bank account. As a result, the decedent’s estate was entitled to the $60,000 bank account.
Conversely, the other case involved a POA with the supplementary document authorizing a beneficiary selection, which was made by the agent. An attempt was made to disregard this beneficiary selection but the Surrogate’s Court held that the beneficiary selection was valid because the POA with the supplementary document authorized the beneficiary selection.
As such, it is important that the durable power of attorney include language giving the agent authority to name beneficiaries. Under state law, the agent can make solo 401k or IRA contributions, take distributions, and make investment decisions if the solo 401k or IRA owner us unable to do so.
To stem the loss of potential wealth, solo 401k owners should meet with their advisors and ask if one of you leaves your solo 401k to the other, but the surviving spouse is unable to make the decision because of incapacity, who would the surviving spouse want to be the beneficiary of the IRA now owned by the surviving spouse? The solo 401k owner’s attorney should then draft an additional document that authorizes the POA’s agent to name specific beneficiaries for a spousal rollover IRA.