Financial Planning
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Probate is a legal process that authenticates and validates someone's will. The process involves the review of a deceased individual's assets and determines their heirs. While probate isn't always necessary, it generally kicks in when someone's estate is of great value. As such, it can be a long, drawn-out, and costly process.
Some assets always pass through the probate process while others may not. Your retirement accounts may end up in probate after you die depending on how you handle them when you're alive. If you choose your beneficiaries strategically, you can avoid that cumbersome and costly fate—and save your heirs a lot of hassle. Here's what you need to know.
Key Takeaways
When a person dies, most of their assets are frozen until their will is validated, all of their debts are paid, and their beneficiaries are identified. This is the legal process known as probate. The probate process can happen rapidly or at a frustrating crawl.
Retirement account assets have the potential to bypass probate. This includes individual retirement accounts (IRAs), 401(k)s, 403(b)s, and a number of less-common types of retirement accounts. The reason: When someone opens a retirement account, part of the paperwork includes naming one or more beneficiaries who inherit the account when the owner dies.¹
The financial institutions where the accounts are held (often referred to as custodians) must hand over those assets to the named beneficiaries upon the owner's death. The contract between the account holder and custodian takes the place of the will for these assets, keeping them out of probate.¹ And there's more good news: In this situation, creditors can’t get their hands on the accounts to collect debts.²
IMPORTANT: If retirement accounts don’t go through probate, creditors can’t collect debts from them.²
As with anything, there are exceptions to the rules that we mentioned in the earlier section. As such, there are several ways that retirement accounts can end up in probate. This usually results from a simple misstep—notably, messing up the beneficiary designation. Here are some examples of how that can happen.
A spouse is entitled to half of anything the other spouse adds to their retirement account during the marriage in community property states—notably, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin, and in some cases, Alaska, South Dakota, and Tennessee.³
That means if the retirement account owner names other beneficiaries in addition to (or instead of) their spouse, the spouse can file a claim to take part of the assets. Doing so will send any retirement accounts the deceased individual has to probate.³
In all states (and especially community property states), a married person must name their spouse as beneficiary to a 401(k) unless that spouse signs a special waiver.⁴
What if you don't name any of your heirs as the beneficiaries of your retirement accounts. If you don't list anyone, your assets will have to go through probate.¹ And a probate court will have to establish an estate for you if you didn't already. There are no clear-cut benefits to doing this as it will complicate matters even more.
Your estate becomes a non-designated beneficiary rather than a designated one. And there are special rules that apply to this kind of heir. For instance, the money in your account must be distributed within five years after your death. ⁵ As such, the estate must remain intact until the account is drained.
Bill collectors will also be able to get their share before any beneficiaries get theirs. So, if you have any outstanding debts, your creditors can file a claim to get a hold of any of your assets, including your retirement accounts.
Any money that goes through the probate process may also incur estate taxes if its value exceeds the federal exclusion amount. The filing threshold for an estate for 2023 is $12.92 million. The threshold increases to $13.61 million in 2024, to account for inflation.⁶ You may also be required to pay an estate tax to your state in addition to the federal government, if applicable.
You can name your child(ren) or other minors as beneficiaries of your retirement account. Keep in mind, though, that minors cannot hold assets with substantial value in their own names. As such, they require someone to manage assets like these for them.
To avoid probate, you must ensure that you designate someone who will manage the money for any beneficiaries who are still minors. They are responsible for overseeing these assets until minor beneficiaries become adults. Any financial institution can help navigate the Uniform Transfers to Minors Act (UTMA).⁷
One important point to note is that going through probate and designating a trustee or setting up conservatorship may incur costs that can diminish the value of your estate.
Other Mistakes
WARNING: You are considered intestate if you die without a will. Any assets you have are passed to your heirs based on your state's inheritance laws rather than to any beneficiaries you elected during your lifetime.
Your assets, including any retirement accounts you have, will pass through probate if anything happens to your beneficiary. This includes:
Probate is also a possibility if your beneficiary becomes incapacitated in any way. When this happens, the probate court has to elect a guardian to oversee any financial matters for them. This normally requires the supervision of the court to ensure that the funds aren't mishandled or misappropriated.
Retirement accounts do not have to go through the probate process if you designate beneficiaries properly. For instance, naming a spouse or an adult child as a beneficiary means the account won't have to go through probate. But probate does kick in if you don't name any beneficiaries, leave the accounts to your estate, or name a minor child.
Retirement accounts aren't considered part of an estate provided the account holder ensures that beneficiary designations are properly filled out. So if you name your spouse or someone else (with your spouse's written consent in community property states), your retirement accounts are not considered part of your estate. As such, they will go directly to your beneficiaries.
The beneficiary inherits a retirement account when the account owner dies as long as they are a designated beneficiary and are of legal age. In community property states, the account owner's spouse must be listed or their written authorization must be obtained to designate someone else.³ If the account owner dies without naming a beneficiary, the account must pass through probate with any other assets. The court decides how the estate will be divided.
It can be a hassle to inherit a brokerage account, unless the owner follows the correct procedures. On a non-retirement account, if the original owner designates a beneficiary, they will establish a transfer-on-death registration that automatically transfers the account to the named beneficiaries at the time of their death. These beneficiaries also take precedence over any allocations in the decedent's will.
For joint accounts, ownership automatically transfers to the surviving owner, unless the account holders pass simultaneously. However, if the deceased did not designate a beneficiary, or the beneficiary is unable to assume account assets, the account will be subject to probate.⁸
Retirement accounts can smoothly and painlessly pass to the beneficiaries named on those accounts as long as you avoid some mistakes. Try to review your beneficiary designations at least once a year or when major life changes happen, such as divorce, remarriage, the death of a former beneficiary, or the birth of a new one.
By Tim Parker | Reviewed by Charlene Rhinehart | Fact checked by Suzanne Kvilhaug
Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
1. Internal Revenue Service. “5.5.2 Probate Proceedings.”
2. Internal Revenue Service. "5.5.1 Decedent and Estate Tax Accounts."
3. Internal Revenue Service. "Publication 555 (03/2020), Community Property."
4. U.S. Department of Labor. "FAQs About Retirement Plans and ERISA," Page 8.
5. Internal Revenue Service. "Retirement Topics - Beneficiary."
6. Internal Revenue Service. "IRS Provides Tax Inflation Adjustments for Tax Year 2024."
7. Social Security Administration. “Uniform Transfers to Minors Act.”
8. Fidelity. "Investment Accounts: Transfer on Death."
Do Retirement Accounts Go Through Probate?
Some assets always pass through the probate process while others may not. Your retirement accounts may end up in probate after you die depending on how you handle them when you're alive. If you choose your beneficiaries strategically, you can avoid that cumbersome and costly fate—and save your heirs a lot of hassle. Here's what you need to know.
Key Takeaways
- Probate is a legal process that assesses the validity and authenticity of a deceased person's will.
- You can protect your retirement accounts from the probate process by designating your beneficiaries properly.
- Your accounts may have to go through probate if you don't name your spouse or if you name your estate as the beneficiary.
- It's best to name both primary and alternate beneficiaries.
- Plan to review your beneficiary information once a year or after any major life changes.
Protecting Retirement Accounts from Probate
When a person dies, most of their assets are frozen until their will is validated, all of their debts are paid, and their beneficiaries are identified. This is the legal process known as probate. The probate process can happen rapidly or at a frustrating crawl.
Retirement account assets have the potential to bypass probate. This includes individual retirement accounts (IRAs), 401(k)s, 403(b)s, and a number of less-common types of retirement accounts. The reason: When someone opens a retirement account, part of the paperwork includes naming one or more beneficiaries who inherit the account when the owner dies.¹
The financial institutions where the accounts are held (often referred to as custodians) must hand over those assets to the named beneficiaries upon the owner's death. The contract between the account holder and custodian takes the place of the will for these assets, keeping them out of probate.¹ And there's more good news: In this situation, creditors can’t get their hands on the accounts to collect debts.²
IMPORTANT: If retirement accounts don’t go through probate, creditors can’t collect debts from them.²
Beneficiary-Selection Mistakes That Can Cost You
As with anything, there are exceptions to the rules that we mentioned in the earlier section. As such, there are several ways that retirement accounts can end up in probate. This usually results from a simple misstep—notably, messing up the beneficiary designation. Here are some examples of how that can happen.
Not Naming Your Spouse, If Necessary
A spouse is entitled to half of anything the other spouse adds to their retirement account during the marriage in community property states—notably, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin, and in some cases, Alaska, South Dakota, and Tennessee.³
That means if the retirement account owner names other beneficiaries in addition to (or instead of) their spouse, the spouse can file a claim to take part of the assets. Doing so will send any retirement accounts the deceased individual has to probate.³
In all states (and especially community property states), a married person must name their spouse as beneficiary to a 401(k) unless that spouse signs a special waiver.⁴
Naming a Trust or Your Estate as Beneficiary
What if you don't name any of your heirs as the beneficiaries of your retirement accounts. If you don't list anyone, your assets will have to go through probate.¹ And a probate court will have to establish an estate for you if you didn't already. There are no clear-cut benefits to doing this as it will complicate matters even more.
Your estate becomes a non-designated beneficiary rather than a designated one. And there are special rules that apply to this kind of heir. For instance, the money in your account must be distributed within five years after your death. ⁵ As such, the estate must remain intact until the account is drained.
Bill collectors will also be able to get their share before any beneficiaries get theirs. So, if you have any outstanding debts, your creditors can file a claim to get a hold of any of your assets, including your retirement accounts.
Any money that goes through the probate process may also incur estate taxes if its value exceeds the federal exclusion amount. The filing threshold for an estate for 2023 is $12.92 million. The threshold increases to $13.61 million in 2024, to account for inflation.⁶ You may also be required to pay an estate tax to your state in addition to the federal government, if applicable.
Naming a Minor as a Beneficiary
You can name your child(ren) or other minors as beneficiaries of your retirement account. Keep in mind, though, that minors cannot hold assets with substantial value in their own names. As such, they require someone to manage assets like these for them.
To avoid probate, you must ensure that you designate someone who will manage the money for any beneficiaries who are still minors. They are responsible for overseeing these assets until minor beneficiaries become adults. Any financial institution can help navigate the Uniform Transfers to Minors Act (UTMA).⁷
One important point to note is that going through probate and designating a trustee or setting up conservatorship may incur costs that can diminish the value of your estate.
Other Mistakes
- Forgetting to name alternate beneficiaries. Designating alternate beneficiaries can keep your accounts out of probate if your primary beneficiaries died or are otherwise unable to receive the money.
- Not keeping beneficiaries up to date. This all-too-common mistake can lead to some unfortunate surprises after you die. For example, the ex-spouse or former friend who is still listed as your beneficiary could receive the account's assets rather than your current heirs.
WARNING: You are considered intestate if you die without a will. Any assets you have are passed to your heirs based on your state's inheritance laws rather than to any beneficiaries you elected during your lifetime.
Special Considerations
Your assets, including any retirement accounts you have, will pass through probate if anything happens to your beneficiary. This includes:
- If your beneficiary dies before you
- If you and your beneficiary die at the same time
Probate is also a possibility if your beneficiary becomes incapacitated in any way. When this happens, the probate court has to elect a guardian to oversee any financial matters for them. This normally requires the supervision of the court to ensure that the funds aren't mishandled or misappropriated.
Which Retirement Vehicles Bypass Probate for Beneficiaries?
Retirement accounts do not have to go through the probate process if you designate beneficiaries properly. For instance, naming a spouse or an adult child as a beneficiary means the account won't have to go through probate. But probate does kick in if you don't name any beneficiaries, leave the accounts to your estate, or name a minor child.
Are Retirement Accounts Considered Part of an Estate?
Retirement accounts aren't considered part of an estate provided the account holder ensures that beneficiary designations are properly filled out. So if you name your spouse or someone else (with your spouse's written consent in community property states), your retirement accounts are not considered part of your estate. As such, they will go directly to your beneficiaries.
What Happens to a Retirement Account When the Owner Dies?
The beneficiary inherits a retirement account when the account owner dies as long as they are a designated beneficiary and are of legal age. In community property states, the account owner's spouse must be listed or their written authorization must be obtained to designate someone else.³ If the account owner dies without naming a beneficiary, the account must pass through probate with any other assets. The court decides how the estate will be divided.
Who Inherits a Brokerage Accounts When the Owner Dies?
It can be a hassle to inherit a brokerage account, unless the owner follows the correct procedures. On a non-retirement account, if the original owner designates a beneficiary, they will establish a transfer-on-death registration that automatically transfers the account to the named beneficiaries at the time of their death. These beneficiaries also take precedence over any allocations in the decedent's will.
For joint accounts, ownership automatically transfers to the surviving owner, unless the account holders pass simultaneously. However, if the deceased did not designate a beneficiary, or the beneficiary is unable to assume account assets, the account will be subject to probate.⁸
The Bottom Line
Retirement accounts can smoothly and painlessly pass to the beneficiaries named on those accounts as long as you avoid some mistakes. Try to review your beneficiary designations at least once a year or when major life changes happen, such as divorce, remarriage, the death of a former beneficiary, or the birth of a new one.
By Tim Parker | Reviewed by Charlene Rhinehart | Fact checked by Suzanne Kvilhaug
Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
1. Internal Revenue Service. “5.5.2 Probate Proceedings.”
2. Internal Revenue Service. "5.5.1 Decedent and Estate Tax Accounts."
3. Internal Revenue Service. "Publication 555 (03/2020), Community Property."
4. U.S. Department of Labor. "FAQs About Retirement Plans and ERISA," Page 8.
5. Internal Revenue Service. "Retirement Topics - Beneficiary."
6. Internal Revenue Service. "IRS Provides Tax Inflation Adjustments for Tax Year 2024."
7. Social Security Administration. “Uniform Transfers to Minors Act.”
8. Fidelity. "Investment Accounts: Transfer on Death."
