Retirement Accounts and Estate Plans

Many people leave funds behind them in a retirement account, so who would inherit this money? Sometimes, thankfully most times, the answer will be straightforward, but in other cases, determining who would inherit this money can be a tricky matter. And even if it is clear who the beneficiary would be, there may be specific rules that oversee exactly how these funds get handed down. Read on to get a general idea of how inheriting funds from a retirement account is different from the rest of the estate plan.

For one thing, most people with IRAs, 401(k)s, and other retirement accounts, will name a beneficiary for the accounts. When the retirement account is first created, the custodian of the account or an employer will hand the person the forms necessary, and there will be blanks for the person to put in a beneficiary's name. It is a pretty simple matter, and usually, an alternate beneficiary can be named too, clearing up any complications should the primary beneficiary pass away before the account owner does. What often happens is that an account owner will put down their spouse's name as the primary beneficiary, and then put down their children's names as contingent, or alternate, beneficiaries. The great news is that if the account owner named a beneficiary, then the funds from the retirement account will evade probate. This also is one thing that the executor of the estate will not have to worry about; the matter is in the beneficiary's hands. All they have to do is approach the company and claim the funds. Things can get especially complicated if more than one person is named as a beneficiary though.

In the rare instance where a beneficiary is not named for a retirement account, then the money could enter probate, and this will be just one more thing that the executor has to oversee. These funds would be subject to what the account owner's will stated. In the even more extreme instance that there is no will either, then state laws will step in.

At whatever point a beneficiary is determined, there will be further rules that dictate how the beneficiary can collect the money, rules that depend on the beneficiary's relationship to the deceased account owner, and on the type of retirement account. A Roth IRA, a traditional IRA, a 401(k), etc., will all have different regulations for how to claim money once the account owner has passed away. The interesting thing is, if the account owner is survived by their spouse, then that spouse may have the strongest claims to the funds, regardless of whether or not they are named primary or alternate beneficiaries, or even if they are not named at all.

Now a surviving spouse, or registered domestic partner, would not have an overriding claim to their spouse's or partner's traditional IRA or Roth IRA, not if someone else was named the beneficiary. But in a community property state, the spouse gets to keep half of the funds if community property went into the retirement account. Community property is owned by both spouses, so a surviving spouse is not inheriting half of the account, they would just be keeping their share. Community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. As for certain other retirement accounts, such as a 401(k), allow a surviving spouse to collect these funds as long as they did not sign a waiver that forfeited this right, enabling their spouse to name someone else as the beneficiary. A prenup does not count as such a waiver.

Of course, any matter of inheritance or probate can be a frustratingly complicated matter. To get the legal help you need at any point of probate or estate planning, contact an experienced probate lawyer on our directory today!