Friday, November 24, 2006

Leave Home Without Them

There are times when I see things done by other professionals that cause my blood pressure to rise to the top of the blood pressure contraption and words like incompetence and dangerous fill my mind.

The folks at Ameriprise, previously known as American Express Financial Advisors, the spin off from American Express are the latest to have caused me to experience this agita.

Last year one of my clients called to tell me that a family friend had inherited some money and wished to leave it to my client's children since the family friend had no heirs. That was a very nice gesture and I met the individual and my client at an attorney's office so that the family friend could create an appropriate will. It was a simple enough matter, leave the assets to the children and if they were under a certain age then the money would be left in a trust for the children and the parent would be the Trustee. A very simple thing to execute under a will, completing the wishes of both the giftor and the inheritee.

The person who had inherited the money was a man of simple means and wished to use the same financial advisor that the other family member, who had left him the money, was using. It was not my place to interfere nor was it my client's to suggest that any other changes be made. I wish I had interfered now.

Most of the time when a Will is created you never expect that person to die soon thereafter. Well, within 15 months of the Will being executed the person died of a massive heart attack.

The Executor of the estate contacted me and asked me to look at some of the documents found at the home of the deceased. Among them was a copy of an application signed and undated creating what is called a Transfer on Death or Payable on Death Account. That document named the parent of the children as beneficiary, directly, not in trust for the children or anything.

The deceased had three accounts at Ameriprise; a regular brokerage account, an inherited IRA and an inherited annuity. It seemed as if the regular brokerage account was being converted to a Transfer on Death account.

When I examined the account holdings I was shocked. The client was in a very low tax bracket and his holdings consisted of a state tax free bond fund. To compound matters, the same tax free bond fund was the IRA├é’s only holding. God Bless Ameriprise, they turned tax free income into taxable!!!!

To be honest I thought that it was impossible to place a tax free bond into an IRA. I thought that there were safeguards in place obviously I am mistaken. However, I can think of no reason to place an instrument that produces tax free income into an IRA and I would welcome Ameriprise├é’s explanation.

The use of a municipal bond fund in the IRA while incredibly stupid was the lesser of two evils. The implementation of a Transfer on Death Account without properly understanding the implications was the real act of negligence because while some of it may be undone by the Courts, the situation can never be made right again.

I have seen too many cases where people prepare Wills only to have their wishes undone when they are in the grave and unable to speak again.

3 comments:

Anonymous said...

Good cautionary tale.

Anonymous said...

That is the difference between fee-only planners and commissioned planners. The Ameriprise "advisor" probably made more off the Muni then a real balanced portfolio, therefore, it was the "best" option. A fee-only planner would listen to your needs and risk tolerance and recommend an appropriate investment vehicle.

Morris Armstrong CFP said...

Actually a bond fund usually pays less commission than an equity mutual fund so I am not sure that it was financially motivated as much as simply incompetent.