Can Retirement Accounts End Up in Probate?

Posted Mar 23, 2022

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For some people, avoiding or minimizing probate is a key goal guiding their estate planning. Probate court is a proceeding to manage the distribution of a deceased person's assets when there is no will, or there is a will, but there is also a dispute or some lack of clarity regarding the disposition of assets. Probate can also handle conservatorships, guardianships, and involuntary commitments.


How Does Probate Work?

The probate process varies between states, although many have adopted a Uniform Probate code (some have only adopted portions of the code, so probate continues to be administered differently by each state). But in general, it is a legal process that functions to distribute a decedent's assets. Probate may still be required to validate the document and oversee the execution if there is a will. However, if there is no known will, probate is almost always necessary to determine the appropriate disposition of assets and liabilities.


Why Do Some People Consider Probate a Burden?

Depending on the state the deceased person resided in, the clarity of the will (if any), and the complexity and size of the estate, probate can be a lengthy and sometimes costly process. In California, for example, the probate procedure is viewed as complex and can take years to complete. However, on the positive side, California law sets flat rates for the fees that probate attorneys can charge, prohibiting them from billing hourly. In Texas and Florida, the average duration of probate is six months, but complicated or significant estates can take longer.


What Assets can Avoid Probate?

First, if you live in one of the community property states, you and your spouse (or domestic partner, in a handful) equally co-own any assets you have acquired during the marriage (or partnership). You can still bequeath your share of the property to someone other than your spouse unless you and your spouse are also co-tenants (which you probably are), in which case the spouse or partner has a right of survivorship and will inherit the other spouse’s half automatically. This situation is only applicable to residential property.


Avoid Probate Using Transfer on Death Designation

You can establish a beneficiary for financial accounts such as checking, savings, money market, brokerage, and retirement accounts when you open the account. In fact, typically, a beneficiary and often an alternate designation is required. This selection is called a transfer on death provision. The named individual has no claim to the account while you are living but becomes the owner when you die.


Retirement Account Beneficiary Mistakes can Trigger Probate

If you are married, you must designate your spouse as the beneficiary of a qualified retirement account unless your spouse signs a specific acknowledgment and waiver. Failure to change the beneficiary to your spouse if you marry can send the account into probate, as will adding beneficiaries other than your spouse if you live in a community property state.

Suppose your beneficiary predeceases you, and you neglected to name an alternate beneficiary. In that case, the account will need to go through probate, as it would if you name a minor without designating someone to manage the funds on their behalf. It's wise to regularly check your beneficiary designations (for retirement accounts plus any other repository of value) to avoid bestowing your assets on someone unintended or triggering unnecessary probate.


This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation.

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