After nearly forty years of work, Ed Lyon had a healthy TIAA retirement account through his employer, the University of Chicago. The respected urologist wanted his account to go to his 36 grandchildren. After seven years, the funds still have not been distributed. The trustee says TIAA has told them the proper paperwork was not submitted.
The account was worth $1.2 million when Lyon died. It’s worth $1.7 million today.
This is not an unusual case, and as the Great Wealth Transfer continues, we expect to see more of these disputes. People often neglect to update beneficiary designations on their accounts or don’t pay close enough attention to how the rules work. It’s a common mistake with significant implications for heirs.
When Lyons died in 2019, the tax law allowed IRA beneficiaries to take RMDs (Required Minimum Distributions) over their lifetimes, allowing the accounts to grow tax-free for many years. This is no longer the case—under recent tax legislation, IRA beneficiaries must withdraw the funds within 10 years of the original owner’s death.
But first, they have to be able to access the accounts. There’s more to the story, as reported in a recent Wall Street Journal article titled “One Small Fortune, 36 Grandkids and an Inheritance Stuck in Limbo.”
Employers are required to pay out tax-deferred retirement accounts to a surviving spouse or the last recorded beneficiary if the spouse has signed a waiver forgoing the funds. These instructions, like many federal laws governing retirement accounts, supersede any instructions in wills or trusts.
This is how ex-spouses enjoy a nice bump in their retirement funds when former spouses neglect to update their beneficiary forms. It’s also how new spouses receive 401(k) accounts: spousal rights take precedence over beneficiary designations. In one family, four children from a first marriage lost out on a $3 million 401(k) inheritance, while the second spouse upgraded her lifestyle.
The family in the Lyon case is all on the same page: the 12 adult children want the three dozen grandchildren to receive their inheritance in line with their father’s wishes.
Ed Lyons and his wife updated their estate plan when they were both in their 80s. Their daughter, Alice, was designated to make medical decisions, and her husband was named the agent for financial decisions. Their trust was updated to include 36 separate trusts, one for each grandchild. Each grandchild was to receive the annual required distributions twice a year: once on their birthday and half at Christmas. When they turned 60, distributions would shift to monthly.
In 2019, Lyons was sick, and his wife was incapacitated. His son-in-law called TIAA to confirm the beneficiary designations. When he called, the representative didn’t have the updated beneficiary form, so he completed and submitted a new one. He did everything correctly: acting as his mother-in-law’s agent under a power of attorney. He signed a document, changing the beneficiaries to the grandchildren and waiving his wife’s spousal rights.
Ed Lyon died in 2019, and his wife passed away in 2020. TIAA sent a letter stating it couldn’t process the beneficiary update because it wasn’t properly signed. In January 2022, TIAA said the family lacked authority to sign the spousal waiver, even though a POA was in place.
It gets worse. The family reached out to the employer, the University of Chicago. The daughter, son-in-law, and their family lived in Wisconsin. The university said the POA wasn’t explicit enough to cover the spousal waiver under a Wisconsin law governing annuities. The family maintained that this was a 401(k) and that the annuity rule didn’t apply. The university says plan rules and the law bind it. TIAA claims it’s only following the rules and isn’t liable for breaching fiduciary duties.
The case has moved from the state trial court to the Seventh Circuit Appellate Court in Chicago. If the family loses, the funds may pass through the late wife’s estate to the grandchildren, but at the cost of forfeiting all tax advantages.
This case should serve as a cautionary tale for families to regularly review their estate plans, update and confirm beneficiary designation forms, and ensure all paperwork is in order.
Reference: The Wall Street Journal (May 15, 2026) “One Small Fortune, 36 Grandkids and an Inheritance Stuck in Limbo”