Do Retirement Benefits and Accounts Go Through Probate?

When focusing on planning your estate, it’s important to consider not just your liquid assets, but also your various benefit accounts, including retirement benefits. If you pass away and still have money remaining in a 401(k), IRA, pension, Roth IRA or other type of retirement account, that money will typically be passed on to your designated beneficiary without having to go through probate. However, that’s not always the case—if you fail to keep your beneficiary designations up to date, there could be some complications with what happens to those assets.

When you first set up your retirement account, you will be asked to name a beneficiary who will be the designated person to receive any money left over in the account upon your death. That money passes directly from the company holding the money to your chosen beneficiary, who simply needs to make a claim for payment(s). The courts do not need to get involved in this process.

If, however, you do not name a beneficiary or your chosen beneficiary has passed away, the funds get put back into your estate and become a part of the assets distributed in the probate process. This means all the limitations associated with probate would apply to them, including fewer payout options, more potential delays in receiving the money and potentially less money received by who you would have wanted to get that money.

Here are some steps you can take when naming beneficiaries to make sure your retirement accounts avoid probate entirely:

• Select your spouse: If you are married and you live in a community property state, it makes the most sense to name your spouse as your beneficiary. In a community property state, half the money you put in the account technically is your spouse’s as well. If you don’t name your spouse as a beneficiary he or she may be able to claim a part of the account upon your death, which could result in the account going through probate. Simply name your spouse as your beneficiary to avoid this.
• Choose alternate beneficiaries: You have the ability to select one or two backup beneficiaries in case your chosen beneficiary has passed away or is otherwise unavailable to receive the benefits upon your death. You can always change beneficiaries whenever you wish, but having backups named protects you in the event you didn’t have an opportunity to change your beneficiary before your death.
• Name your living trust as a beneficiary: Retirement accounts that designate your living trust as beneficiary avoid probate and can deliver huge value to beneficiaries. It is true that they may lose some flexibility in how they use them, so speak with an experienced estate planning attorney before designating your living trust as a beneficiary of your retirement accounts.

Always keep your beneficiary designations up to date, and you shouldn’t have any issues with getting your retirement accounts to bypass probate. For more information, contact us today at Speedwell Law PLLC.

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Misha Gill is an Alexandria estate planning attorney for his firm, Speedwell Law, PLLC. If you would like assistance in setting up your own will, living trust, and other estate planning documents, Misha can be reached at (703) 553-2577 or [email protected].

This post, including any of its contents or links, is not intended to provide you with legal advice. It provides personal perspectives on legal news and developments. Reading this post, leaving a comment, or communicating with its author by email or over the Internet does not create any attorney-client relationship.