One of the biggest questions asked about the management of an estate upon the death of a person, the decedent, is how a Will does or intestate succession deal with the IRA or some other types of retirement accounts? The shortest answer is that from the estate’s probate it does not deal with it. These types of holdings are a creature of contract, which will allow for the pre-death determination of who will be the third-party beneficiary upon the death of the otherwise benefited person who owned the account.
Disbursing of an IRA account is determined by the beneficiary designation, which is part of the IRA or Retirement contract. These transfers occur outside of probate and without regard to other documents that may be in place such as wills or trusts. For example, because your sibling was alive when your parent died, his share became his or hers upon your parent’s death if your sibling was named as the beneficiary. Your sibling’s share is therefore part of your sibling’s estate now that the parent has died.
Usually, the beneficiary may elect to take the money or designate an established an Inherited IRA and named his own beneficiaries. Those beneficiaries would now get the assets based on the beneficiary designation. However, since no paperwork had been processed, what happens next depends on what beneficiary’s estate documents say.
If there is a Will, it will state who gets what and when. This Will requires probate. If there is not a Will, the intestate laws of the state apply. The disbursements under intestate laws are facilitated through the probate process. Most of the intestate laws favor the spouse over children or other relatives.
Now, if the beneficiary dies before the decedent passed, then the beneficiary forms on your IRA would determine who gets the share or shares, next. It is also possible that the decedent’s beneficiary designation could have included a “per capita” or “per stirpes” election. These elections only apply when a beneficiary pre-deceases the IRA owner. A per capita (per head) election would mean the IRA would be split between the three beneficiaries that survived your dad. Per stirpes (per branch) would mean that the one-fourth share for your deceased sibling goes to that sibling’s heirs.
The various scenarios help demonstrate the importance of properly designating beneficiaries on IRAs, Roth IRAs, retirement accounts, insurance policies and any other accounts that provide for a beneficiary designation. Put some thought into it and plan ahead. Don’t just slap a name or two on a form or worse fail to file a beneficiary designation form at all.