We’ve noticed over the past few years that clients have gotten sloppier in how they title mortgages and real estate in their self-directed Individual Retirement Accounts (IRA) and retirement plans. Florida has a specific statute that dictates exactly how such assets must be titled in order to avoid the necessity for a title agent to review the custodial agreement or inquire as to who is required to execute the documents on behalf of the custodian.
Lately, we have seen a lot of assets titled as “IRA Custodian, Inc FBO #123456789.” This is technically legally deficient. The law requires that assets be titled as, “IRA Custodian, Inc. as custodian or trustee for the benefit of (name of individual retirement account owner or beneficiary) individual retirement account.” If the custodial account is a retirement plan, then the asset must be titled as, “IRA Custodian, Inc. as custodian, or trustee of the (name of plan) for the benefit of (name of plan participant or beneficiary).” Florida Statutes Section 689.072 (2006).
To title the asset in any manner that doesn’t follow the statutory language to the letter runs the risk that a title agent, examiner, or underwriter may demand production of the custodial agreement for review prior to closing the purchase, sale, or refinance of the asset. That may be the least of a client’s problems, however. If the asset is a mortgage and note, it is conceivable that a defaulted borrower could demand production of the custodial agreement or raise the defense that the custodian has no authority to foreclose until the custodial agreement is produced, and the power to foreclose is proven.
We would encourage anyone who is using the self-directed IRA or retirement plan through a custodial account to follow the statute to the letter when titling the self-directed asset whether in a deed, lease, or mortgage and note. Doing so will provide the benefit of a statutory presumption that the custodian has the full power and authority to protect, conserve, sell, lease, encumber, or otherwise manage and dispose of the real property described in the recorded instrument without joinder of the named individual retirement account owner, plan participant, or beneficiary.
If the assets are held in a “checkbook-control” IRA limited liability company, or within a land trust, the title agent will likely never realize that the statutory language hasn’t been used, so there may be no issue. However, we would still counsel that the statutory language be followed to the letter even when titling within the LLC or land trust to avoid the potential problems. While a client may lose a little privacy when their name is published as the beneficiary or plan participant, that loss of privacy is nominal when compared to the other issues that can arise.
Finally, we advise that the beneficiary’s or plan participant’s name should never appear in the asset’s title together with the plan’s account number. This causes problems with redaction requirements later should litigation ever arise in relation to the asset.