Do Retirement Accounts Go Through Probate?

A significant percentage of workers count on their retirement account funds to live comfortably during their retirement years. You might have only one retirement account, or several, by the time you reach retirement age. In order to effectively plan your estate plan, it’s critical to understand the relationship between your retirement accounts and estate planning.

When a person dies, most of their assets can be frozen until their estate goes through probate. When an estate goes through probate, the will needs to be validated, beneficiaries need to be identified, and all debts need to be paid. The probate process can happen quickly or extremely slow depending on the assets in each estate.

However, retirement account assets have the potential to bypass probate. This would include IRAs, 401(k)s, 403(b)s, and a number of other less-common types of retirement accounts. The only way that retirement account assets could bypass probate is if you properly named beneficiaries for the retirement accounts.

When you open a retirement account with a financial institution, they will require you to complete paperwork naming your beneficiaries. When you die, the financial institution must hand over those assets to the named beneficiaries. Your retirement account is a contract between you and the financial institution, and it takes the place of a will, keeping these particular assets out of probate.

Estate planning for IRAs and other retirement accounts can be a complicated task that has to take into account both the legalities and tax consequences of inheriting funds held in a retirement account; this is why it’s critical to have your estate plan reviewed by a qualified lawyer.

Is a retirement account a probate asset?

This would depend on whether or not you correctly named beneficiaries on your retirement account paperwork. A retirement account can end up in probate if:

1. You fail to name any beneficiaries
2. You name your trust as a beneficiary
3. You name a minor as a beneficiary
4. You fail to list alternate beneficiaries (you need alternates in case your first-choice pre-deceases you)
5. You live in a community property state (Arizona) and name someone other than (or in addition to) your spouse as a beneficiary

It’s advisable to review your beneficiary designations on a regular basis with a qualified attorney and make any necessary changes.

What happens to a retirement account when the owner dies?

Most retirement accounts require the owner to take the funds out in disbursements over many years instead of just withdrawing one lump sum when they reach retirement age. So, it’s not unusual to have funds left in a retirement account upon death.

When you die, any benefits left in your retirement account would be paid, under the terms of the plan, to the person you listed on your beneficiary designation form. Typically, these funds are paid either through a lump-sum distribution or an annuity.

Retirement account assets can be paid out to the beneficiary shortly after the owner’s death because they are considered non-probate assets. In order to receive the distribution of retirement assets, the beneficiary would need to submit a certified copy of the death certificate to the plan administer of the retirement account and follow any other steps as required by the retirement plan.

Once the beneficiary submits the certified death certificate, the plan administrator would provide the beneficiary with the following information:

• the amount in the retirement account
• the form of benefits (installment payments under an annuity or lump sum payment)
• whether payments from the plan may be rolled over into another retirement plan
• if a rollover is possible, the method and time period in which the rollover must be made

If there are numerous retirement accounts being held at different financial institutions, the beneficiary would need to submit the correct documentation to each financial institution.

Contact Us

Arizona probate laws can be overly complex, which is why you need an experienced attorney to help you craft an estate plan that will avoid the probate process.

Brown & Hobkirk, PLLC can help you review your retirement accounts to ensure your assets have proper beneficiary designations. Contact us today for a free consultation* at one of our conveniently located offices in Scottsdale, Phoenix, Peoria, Chandler, or Tucson
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