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Regulation and Compliance > Litigation

Wells Fargo Advisor's Mistake Caused Costly RMD Shortfall: Lawsuit

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A Wells Fargo advisor’s error in entering an IRA trust beneficiary’s birthdate caused a significant shortfall in required minimum distributions over several years, leaving the trust with over $130,000 in Internal Revenue Service penalties, according to a recent lawsuit filed against Wells Fargo & Co., its Wells Fargo Advisors subsidiary and other defendants.

In addition to the IRS penalties for failing to disburse the correct RMD amount, the living trust has incurred unnecessary fees for accountants and attorneys to investigate the matter, and the higher lump-sum payments due have placed the beneficiary, Jacqueline Lowe, in a higher tax bracket and reduced her Social Security benefits, according to the lawsuit.

Lowe’s lawsuit, filed last month with a successor beneficiary in U.S. district court in Louisiana, accuses Wells Fargo and the other defendants of negilgence and breach of fiduciary duty.

The complaint by Lowe, who also serves as The Lowe Family Trust Beneficiary IRA’s co-trustee, states that the trust, which her late husband established in 1997, contains his IRA. She is the trust’s sole income beneficiary.

For years, a Wells Fargo advisor, Blake Kymen, supervised and managed the trust, according to the complaint, which alleges that when the account was first established, Kymen mistakenly entered Lowe’s birthdate as Jan. 1, 2001, rather than the correct Oct. 31, 1939.

Lowe’s husband died in 2011 and the advisor died sometime around 2019, according to the suit. The trust was then assigned to another Wells Fargo employee, Oscar Hernandez, who later moved to Morgan Stanley, and the trust transferred to Morgan Stanley so he could continue to serve as its manager, the complaint says.

In December 2022, Hernandez informed Lowe that the RMD for that year was much higher than it had been when Wells Fargo Advisors managed the trust, and suggested she contact her CPA to figure out why.

The accountant found the birthdate error, which had never been corrected, and told Lowe that as a result, Wells Fargo Advisors had taken “less than the RMD required by law, year after year, especially after Ms. Lowe turned 70 and 1/2 years old” in May 2010, according to the lawsuit.

The CPA calculated that the trust should have distributed over $842,700 in a period when it actually distributed nearly $570,500, the complaint states.

Wells Fargo representatives didn’t immediately respond to an emailed request for comment Tuesday. No individual advisor appears to be named as a defendant.

Financial Advisor IQ reported on the suit earlier Tuesday.

Image: Adobe Stock


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