The short answer is, “No.” Although some of your assets are subject to the probate process when you pass away, accounts like your Thrift Savings Plan (TSP), 401(k), IRAs, and similar retirement savings plans are not. That’s because assets with designated beneficiaries usually bypass probate unless you’ve dropped the ball.
Beneficiary Designations Supersede Your Will
You may be surprised to learn that beneficiary designations always override a Last Will & Testament, a Trust, and even a pre-nuptial agreement. That’s why it’s important to update beneficiaries after significant life events like divorce, remarriage, or when a spouse beneficiary passes away before you.
Forgetting To Update Designated Beneficiaries
If you can’t recall who you designated as the beneficiary of your TSP and other retirement accounts then your legacy is at risk. If the person you designated passes away and you haven’t selected an alternate beneficiary, depending on the rules governing your retirement plan, your account may end up in probate court. Another scenario, when you purchased the policy, you may have named a spouse you later divorced. Without changing the beneficiary, your ex can legally collect the account proceeds when you die.
“Also keep in mind that all states require your spouse to be the designated beneficiary of your 401(k) unless they sign a waiver.”
Not Naming Your Spouse If You Live In A Community Property State
If you live in a Community Property state, half of the money you contributed to your retirement plan during your marriage goes to your spouse. If you named other beneficiaries instead of your spouse, your spouse can file a claim that lands your account in probate. Also, keep in mind that all states require your spouse to be the designated beneficiary of your 401(k) unless they sign a waiver.
Designating A Minor As Your Beneficiary
Though you can name a minor as the beneficiary of your retirement accounts, if they’re underage when you die, the court will likely appoint a conservator to manage the funds. This can take some time in addition to paying the court costs and the process can be just as tedious as the probate process. To avoid the hassle, name a conservator for minor children in your Will.
Don’t Forget To Name Beneficiaries For Bank Accounts
If you die without naming a beneficiary for your bank accounts, the funds may end up being added to your estate and subject to probate court. However, if it’s a joint bank account, it will usually pass to the surviving owner and avoid probate.
Although it’s unpleasant to think about your death, updating beneficiary designations is an important component of retirement planning. Connect with an FRC® trained advisor to learn more.
