What happens if you die with no IRA beneficiary? You probably don’t want to find out

Having the estate inherit IRA assets usually results in the worst outcomes.

  • By Dan Moisand,
  • MarketWatch
  • Estate Planning
  • Getting Ready to Retire
  • Living in Retirement
  • Recordkeeping and Filing
  • Saving for Retirement
  • IRA
  • Estate Planning
  • Getting Ready to Retire
  • Living in Retirement
  • Recordkeeping and Filing
  • Saving for Retirement
  • IRA
  • Estate Planning
  • Getting Ready to Retire
  • Living in Retirement
  • Recordkeeping and Filing
  • Saving for Retirement
  • IRA
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If you want your IRA money to go to whom you want with as little hassle and taxes as possible, you better have your beneficiary designations in place correctly.

Q: What if you have no beneficiary on paper on your IRA but have a wife and daughter?

A fair way to divide your estate

Read on for tips to handle a very delicate situation.

A: These are legal matters and I am not a lawyer so you should consult your attorney about what is best for your situation but I can speak to a few generalities.

It is much better to put pen to paper and record your beneficiary designations properly. If no beneficiary is designated, the IRA agreement most likely points the money to your “estate” and the assets become subject to probate.

From the Latin probare, meaning to test or prove, probate is the process of proving the validity of a will.

If you do not have a will, the assets are distributed based on each state’s “intestate” laws. Some states give it all to the surviving spouse, others give some to the surviving spouse and some to descendants.

If you have a valid will, the probate court will generally follow the instructions in the will regarding who gets how much.

However, having the estate inherit the IRA assets, whether a will exists or not, usually results in the worst outcomes. It is far better to name beneficiaries from the start. By naming beneficiaries correctly, there will be less expense, aggravation, processing time and taxes for your descendants.

For instance, if you wanted your daughter to inherit upon your death and she was properly named a beneficiary, she could opt to leave most of the money in an inherited IRA. She would only need to take out a required minimum distribution each year based on her life expectancy. That could be a lot of years to stretch out the distributions and the associated taxes. She would also have the flexibility to take out more at any time of her choosing.

Same thing goes if your spouse was properly named a beneficiary. However, your spouse would also have options non-spouses do not.

By contrast, if the IRA goes through the estate, depending on the age of the deceased at the date of death, the beneficiaries may need to distribute all of the IRA — and pay the taxes on those distributions — within a mere five years.

In addition, if you properly name beneficiaries, the transfer from your IRA to an inherited IRA typically only takes a few days once a death certificate is obtained and costs almost nothing. Going through probate can take months and can involve substantial court and attorney’s fees.

Probate is also public record so any one that is curious can find out what is in the estate and who is trying to get what. Every few months you will see a story about some celebrity’s family fighting over an estate because matters like this were neglected and the assets went through a probate court.

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