
Do IRAs Pass Through Probate?
When planning for the future, understanding how your assets will be distributed after your passing is a big part of ensuring your wishes are honored. At Commonwealth Life and Legacy Counsel, we often hear questions about Individual Retirement Accounts (IRAs) and whether they need to go through probate.
As estate planning attorneys serving families in Fluvanna, Zion Crossroads, Louisa, and across Central Virginia, we’re here to break the answer to this question down for you in simple, straightforward terms.
How IRAs Are Handled in Probate in Virginia
Most IRAs are designed to avoid probate, provided the account holder has named a beneficiary. When you set up an IRA, you’re given the option to name a primary beneficiary (the first person or people who will receive the account assets) and a contingent beneficiary (a backup if the primary beneficiary passes away).
Having these designations in place means the assets in your IRA can transfer directly to the named beneficiaries after your death. This process bypasses the probate court, making the transfer faster, simpler, and more private. Instead of waiting for probate to conclude, the beneficiary can work directly with the financial institution to claim the IRA funds.
Why Naming Both Primary and Contingent Beneficiaries Matters
Naming a primary beneficiary is only part of the equation. A contingent beneficiary is equally important because life is unpredictable. If the primary beneficiary passes away before you do, the assets could end up in probate unless there’s a backup plan. Keeping these designations updated ensures your IRA transfers smoothly to the people you intend.
Scenarios Where an IRA May Go Through Probate in Virginia
While IRAs usually bypass probate, there are certain situations where they might end up in court. Let’s take a closer look:
No Beneficiary Named
If you don’t name a beneficiary for your IRA, the account assets may become part of your estate after you pass away. In Virginia, this means the IRA will need to go through probate, which can delay the distribution and add unnecessary expenses.
Deceased Beneficiary
Life events happen, and a named beneficiary may pass away before the account holder. If this happens and you haven’t updated the designation, the IRA could default to your estate, forcing it into probate. This is why we recommend reviewing and updating your beneficiaries regularly, especially after major events like a death in the family.
Estate as Beneficiary
Some account holders intentionally name their estate as the beneficiary of their IRA. While this might seem simple, it often causes more problems than it solves. Naming your estate as the beneficiary means the IRA must go through probate, and the assets may be subject to creditors and legal fees before reaching your heirs.
Minor Beneficiary
If you name a minor as the beneficiary of your IRA, things can get complicated. Minors cannot legally manage inherited assets in Virginia. As a result, the court may appoint a guardian to oversee the funds until the child reaches adulthood. A better solution is to set up a trust for the minor, which allows you to control how and when the assets are distributed.
Invalid Beneficiary Designation
Sometimes, a beneficiary designation is ruled invalid—for example, if it’s filled out incorrectly or the designated beneficiary predeceases you without a contingent being named. In these cases, the IRA could end up in probate.
Lack of a Valid Will
If a will is not valid or is contested, it can complicate the distribution of assets like IRAs. In these situations, the probate court will step in, which could significantly delay the process.
Benefits of Avoiding Probate with IRAs
Avoiding probate with your IRA offers several benefits for your loved ones. Here’s why it matters:
Saves Time and Money
Probate can be time-consuming and costly, especially if the process drags on due to disputes or other complications. By ensuring your IRA avoids probate, you can save your beneficiaries the hassle of court proceedings and legal fees.
Provides Privacy
Probate is a public process, which means the details of your assets, including the value of your IRA, become part of the court record. Keeping your IRA out of probate ensures this information remains private for your beneficiaries.
Minimizes Taxes
With proper planning, inherited IRAs can be structured to minimize taxes for your beneficiaries. This is particularly important for spouses and children who may need to stretch distributions over time to reduce their tax burden.
Faster Access to Funds
Losing a loved one is hard enough without the added stress of waiting months to access needed funds. By bypassing probate, beneficiaries can typically claim their inheritance much faster, which can be a significant relief during an already difficult time.
The Importance of Proper Beneficiary Designation
To ensure your IRA avoids probate, it’s essential to keep your beneficiary designations up to date. Here’s why:
Life Changes Happen
Major life events—such as marriage, divorce, the birth of a child, or the death of a beneficiary—are all reasons to review your designations. Keeping them current ensures that your IRA will go to the right people.
Avoid Complications with Minors
Naming a minor as a beneficiary can create legal hurdles. Instead, consider setting up a trust to manage the funds until the child reaches a certain age.
Coordination with Your Estate Plan
Your IRA is just one part of your estate plan. It’s important to coordinate your beneficiary designations with your overall goals to avoid conflicts or unintended outcomes. For example, if your will says one thing and your IRA designation says another, the IRA designation typically takes precedence.
Real-Life Examples
To put this into perspective, imagine you name your spouse as the primary beneficiary and your child as the contingent beneficiary. If your spouse passes away first, the IRA automatically goes to your child without probate. If you failed to name a contingent beneficiary and do not update the designation after your spouse’s passing, the IRA might default to your estate, leading to unnecessary delays and costs.
Schedule a Consultation with Our Experienced Estate Planning Attorneys
At Commonwealth Life and Legacy Counsel, we know how important it is to protect your assets and ensure your loved ones are cared for. Whether you’re setting up your IRA beneficiaries for the first time or updating your estate plan, we’re here to help.
Don’t leave the future of your IRA to chance. Contact Commonwealth Life and Legacy Counsel today to schedule a consultation. Our team proudly serves clients in Fluvanna, Zion Crossroads, Louisa, Lake Anna, Albemarle, Charlottesville, Scottsville, and Powhatan. Together, we’ll make sure your IRA avoids probate and your loved ones are protected.
Call us at (804) 598-1348 or email info@winget-hernandez.com to get started today.