For many Americans, the vast majority of their net worth is in retirement accounts such as 401(k)s and IRAs. Ensuring that these accounts transfer smoothly to your loved ones after your death is an important part of estate planning.
Retirement accounts are typically not probate assets. The crucial task to keep a retirement account out of probate is list at least one beneficiary for each account. If the account lists at least one beneficiary (and that beneficiary is still alive!), then no probate is needed for that account. This means that when the owner of the retirement account dies, the person listed as the beneficiary can access the funds without going through the probate court.
Retirement accounts become probate assets in several scenarios. If the retirement account owner listed their own estate as a beneficiary of the account, then the account passes through probate. If the retirement account owner did not designate any beneficiary, then the account might pass to their estate after their death, depending on the fine print of the retirement account.
With retirement accounts, after the account owner dies, typically a family member or estate attorney will contact the financial institution that holds the retirement account. They will report the account owner’s death and request that the institution begin transferring the funds to the beneficiaries.
You do not need an attorney to name beneficiaries on your retirement accounts. You can name or change beneficiaries by working with the financial institution that holds your retirement account(s). We recommend that you review the beneficiary designations on your retirement accounts annually.
Although you do not need an attorney to designate beneficiaries, an estate planning attorney should review the beneficiary designations on your retirement accounts. Federal laws regarding inherited retirement accounts have changed significantly in recent years. An attorney can help you understand your options and advise whether to make any changes to your beneficiary designations.
Estate planning for retirement accounts can be complex, and it is best to consult with a local attorney. For estate planning questions in Northeast Ohio, Lewis Legal, LLC is here to help.