When you either started a Roth IRA or began participating in your employment retirement plan, you should have filled out a beneficiary designation form. You believed that filling that out would guarantee that the person or people you designated will receive the funds in your account upon your death.
While it is generally true, there are some exceptions. It is possible for a retirement account to go through the probate process despite that beneficiary designation form. The inheritance you wanted to give could end up jeopardized if you don’t do it right.
Mistakes that could put your retirement account into probate
Other than leaving funds to someone you love, another benefit of designating someone to receive the funds from your retirement account is that creditors cannot gain access to those funds. Your loved one will receive the full amount without any deductions for the bills you had upon your death. However, the mistakes below could negate those benefits:
- If you name your estate as the beneficiary of your retirement account, the funds go into probate. This means they are available to pay creditors and taxes, which could significantly diminish the amount your beneficiaries receive at the end of the probate process.
- You may already know that Nevada is a community property state, which means that your spouse deserves half of the funds your retirement account accumulated during the marriage. If you fail to name your spouse as a beneficiary, he or she can petition the court for a share, which puts the funds into probate.
- If you fail to name an alternate beneficiary on your retirement account and the primary beneficiary died before you or otherwise cannot receive the money, the funds go into probate.
- You may want to leave your retirement account to a minor child, but that would be a mistake since minors cannot inherit property. This means that you will need to make arrangements to hold and manage that money until your minor child reaches the age of majority.
- If you fail to periodically check your beneficiary designations and update them as needed, the funds could end up in probate. Using an example above, if a beneficiary dies, but you fail to change that designation, your funds could end up as part of your estate instead of going where you want.
The easiest way to avoid making these mistakes is to discuss your beneficiary designations with an estate planning attorney. Doing so could help ensure that the funds end up where you want them to go instead of as part of your estate going through probate.