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The importance of naming a beneficiary on an IRA

On Behalf of | Oct 3, 2022 | Probate & Estate Planning |

An unexpected death can present problems for Pennsylvania families when an estate goes to probate. No family wants to learn after the fact that their assumption regarding automatic inheritance is incorrect. Even a spouse may have difficulty obtaining financial assets in some situations.

While some accounts such as a bank account where both spouses are named become the automatic property of the surviving account holder, the same is not necessarily true for other financial accounts. Pension funds are central to those that can present problems, with an individual retirement account being even more restrictive than a 401(k) fund.

Estate plans in general

Everyone in Pennsylvania should perform some type of personal estate planning even when they are married. This can be very important if a decedent’s estate goes to probate intestate, meaning without a will. Assuming that a spouse will automatically inherit all marital property is not enough to ensure the proper transfer of funds, and a comprehensive estate plan will eliminate this potential problem.

Pension funds and insurance policies

One reason an annual estate plan checkup is advisable is to ensure that all financial assets which are supposed to pass outside of probate are actually set up correctly to do that. Insurance policies that are owned by the decedent with no beneficiary will become part of the estate, which means that they are exposed to creditors and tax collectors during the probate process. The same is true for an IRA unless the spouse or another person is officially designated as the beneficiary.

Additionally, along with an IRA, employer pension funds may also be subject to the same Pennsylvania law that includes all unclaimed funds in an estate during probate. The bottom line is, everyone should have a comprehensive estate plan, put together after consultation with an experienced estate planning attorney, to make sure that your assets are inherited the way you intend.