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What happens to your retirement in probate?

It is true for almost everyone that their retirement is one of the largest assets they own. Throughout your entire career, you contribute a portion of your income to your retirement.

Nowadays, many people worry they might not have enough saved to last their retirement. On the other hand, some might worry about what will happen to all the assets they saved if they do not use it all before they pass away.

This might lead you to wonder what will happen to your retirement funds in the probate process.

Retirement assets may not have to go through probate

Contrary to popular belief, not all of your assets will have to go through the probate process. Only specific assets are included in the probate estate, for example:

  • Most real estate properties and vehicles;
  • Business interests or stocks;
  • Bank accounts; and
  • Tangible personal property, such as artwork or furniture.

However, there are several non-probate assets as well that operate based on beneficiaries. Retirement benefits fall into that category.

Beneficiary designations take precedence over wills

Many retirement benefits specifically include a beneficiary designation. It is built into the benefits program that the assets will be transferred to the listed beneficiaries upon the death of the individual. This process usually applies to:

  • 401(k)s and 403(b)s;
  • Pensions;
  • Independent retirement accounts (IRAs);
  • Life insurance plans;
  • Payable-on-death accounts; and
  • Real properties with a “Transfer on Death” Deed or held in joint tenancy with a living survivor.

In the probate court, beneficiary designations trump any wishes in a will. For example, if someone states in their will that a disinherited child should not receive any retirement assets, that child might still obtain those assets if the individual does not change their beneficiary designations on the retirement account itself.

If there are no beneficiary designations, or if your designated beneficiary dies before you, then your retirement account may become subject to the lengthy probate process.

This is why it is critical for you and your family to understand which of your assets are non-probate assets. And you must ensure your beneficiary designations are in line with your wishes. That way, your family can avoid running into confusion and complex issues in the probate process.

 

 

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