The Estate Tax Trap: How a 78-Year-Old Couple Lost $600,000 to Misleading Fiduciary Claims by Their Retirement Custodian
The Estate Tax Trap: How a 78-Year-Old Couple Lost $600,000 to Misleading Fiduciary Claims by Their Retirement Custodian
A Wake-Up Call for University Professionals Nearing Retirement
Meet Harold and Margaret Thompson, a retired couple from Naperville, Illinois. After Harold’s 35-year career as a professor at a prominent Illinois university, they believed they had safeguarded their financial future by diligently contributing to his 403(b) retirement plan.
In 2023, the Thompsons were contacted by a representative from the university's longtime retirement plan custodian. The advisor, backed by a familiar brand they had trusted for decades, recommended consolidating their $3.9 million retirement savings into a fixed annuity product offered directly by the custodian. It sounded safe and straightforward—but it was anything but.
Fiduciary in Name, Not in Practice
The advisor framed their services using comforting language: “non-profit heritage,” “objective advice,” and “salaried representatives with no commissions.” Yet, investigations reveal these descriptions often mask deeper conflicts of interest.
Compensation structures frequently reward advisors for asset growth, product cross-selling, and client rollovers. While they present themselves as fiduciaries, the reality is that many only owe clients the lower "suitability" standard—meaning recommendations just need to be “suitable,” not necessarily in the client’s best interest.
In this case, the Thompsons believed they were receiving fiduciary-grade guidance. In truth, the custodian had legally structured its services to avoid such obligations. Internal training materials even encouraged “hat switching”—moving between fiduciary and broker-dealer roles without client awareness.
Estate Planning Oversights with Devastating Consequences
At the advisor’s suggestion, the Thompsons moved their entire retirement balance into a fixed annuity. But the advisor failed to mention critical estate and liquidity issues:
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Illinois estate tax threshold: $4 million per person with no portability—meaning a couple can’t combine exemptions like with the federal estate tax.
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Their estate: Between retirement savings, a $800,000 home, and other assets, they had amassed $5.3 million, exposing them to a $600,000 Illinois estate tax liability.
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Annuity liquidity restrictions: The product they were sold had a 10-year Transfer Payout Annuity (TPA) withdrawal schedule, preventing timely access to funds.
When Harold faced health issues in 2024, they discovered they couldn’t access their funds quickly. Worse, the required annual payouts (~$450,000) drove up their federal income taxes and left them unable to execute critical estate strategies.
A Cascade of Financial Damage
The annuity's illiquidity compounded their tax burden:
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Forced withdrawals meant higher federal income taxes.
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Inability to gift, donate, or restructure the estate left their taxable estate exposed.
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Lost flexibility limited their capacity to adapt plans as health declined.
Financial experts estimate the Thompsons lost over $1.4 million through estate taxes, excess income tax, and missed planning opportunities—all due to poor guidance under the illusion of fiduciary care.
This Could Happen to You
This case underscores a widespread problem: many custodians that manage university retirement plans promote an image of trust and objectivity, while quietly sidestepping fiduciary accountability.
Red Flags for University Faculty and Staff:
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Emphasis on brand heritage or "trusted partnership" over legal fiduciary commitments.
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Vague or evasive answers about fiduciary obligations.
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Pressures to consolidate into proprietary annuities products or managed accounts.
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Disclosures that state fiduciary obligations end after a report is delivered.
How to Protect Yourself
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Demand Written Fiduciary Confirmation: Ensure the advisor is bound to act in your best interest across all services—not just planning reports.
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Get Independent Advice: Consult fee-only fiduciary advisors who don’t earn commissions or work for plan sponsors.
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Understand Product Liquidity: If you’re in a 403(b) plan, know whether your annuity options include TPA restrictions.
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Evaluate Estate Tax Impact: If your estate exceeds $4 million in Illinois, speak to an estate attorney before any major financial move.
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Document Everything: Keep records of all advisor communications and marketing materials promising “objective advice” or fiduciary standards.
The Final Toll
After Harold’s passing in 2025, Margaret faced the tax consequences alone. The estate owed $600,000 to Illinois. The family explored legal recourse but found that courts had upheld the custodian’s limited legal obligations due to disclaimers buried in documents.
This experience highlights a crucial lesson: trusting a familiar brand is not the same as receiving true fiduciary care. As you approach retirement, especially with large balances in 403(b) or 401(k) plans, you owe it to yourself—and your heirs—to verify that the advice you’re receiving truly aligns with your interests.