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Do retirement accounts need to go through probate?

When it comes to estate planning, retirement accounts are often overlooked.  Usually, a retirement account will pass directly to the named beneficiary without passing through probate.  However, it is still critical to include your retirement accounts in your estate plan so that you can reduce the often burdensome federal and state estate tax.  Our St. Petersburg, Florida estate planning lawyers at Verras Law explore some steps you can take to reduce taxes on your retirement assets and ensure they avoid the probate process.  

Minimizing Taxes on Your Retirement Account

There are several steps you can take as a part of your estate planning process in order to reduce the taxes on your retirement assets.  Consider the following:

  • Be sure that you have carefully selected a beneficiary prior to taking distributions from your retirement account;
  • Always update your beneficiary if you have a life change or your named beneficiary passes away;
  • Inform your named beneficiaries that they may be able to take an income tax deduction for federal estate taxes paid on the retirement account;
  • Consider donating your retirement account to charity if you intend to leave a portion of your estate to charity as this will allow the assets to escape taxation;
  • Research an irrevocable life insurance trust to determine if this would be of assistance to your named beneficiaries.

Retirement Accounts and Probate

In most cases, retirement accounts will not pass through probate if they are properly designated.  Your properly named beneficiary designation in your retirement account will take precedence over any provisions included within your will concerning the retirement account  

At times, however, a retirement account will be forced to go through probate when there are no beneficiaries listed on the account and you do not have a plan document or custodial agreement that specifically addresses who will become the beneficiary.  For instance, if the named beneficiary has passed away and your beneficiary designation was not updated prior to your death, then the retirement account will need to go through probate, where it will face taxation.  

Contact an estate planning attorney for assistance with incorporating your retirement account into your comprehensive estate plan.  With advance planning, you can ensure that your heirs receive your retirement assets and other valuable assets swiftly with minimal tax consequences.