3 Reasons Why Your Retirement Accounts Should Not Go To Probate

Retirement and estate planning offers peace of mind

When you begin to create an estate plan, the first step is often to think about what you own and who should inherit it at the time of your passing.  Retirement and estate planning addressed now will prepare you and your family for retirement and beyond.  While this is not a subject that many of us want to focus on, it is critical to ensure that our goals for our legacy can be achieved. From your spouse and your children to your business and the causes you care about, your estate plan can create a legacy that will far outlive your lifetime. 

As such, your legacy needs to be carefully planned. Not all retirement and estate planning tools operate the same or can achieve the same results. When you work with an experienced, estate planning attorney, he/she can guide you through this process of identifying what you own and the best estate planning tools to use to accomplish your goals. Your attorney can also help you determine the best way to transfer your hard-earned assets to your loved ones at the time of your passing without the need for court involvement, also referred to as the probate process.

Many families that we work with today have significant wealth in retirement accounts. One of the major benefits of retirement accounts is their tax benefits. Unfortunately, if they are not devised properly through your estate plan, these benefits can be lost. Let us share three key reasons why these accounts should not go to probate with you right here in our blog.

1. Loss of privacy. For most families a retirement account represents a significant amount of wealth.  By not naming beneficiaries correctly, you place your retirement account at risk of going through probate. This will be a public process and, as a result of the nature of probate, your retirement account will become subject to potential creditors being able to access these funds to pay your valid end-of-life debts.
2. Lack of access to wealth. The probate process is also time consuming. One of the main benefits of transferring assets, such as retirement accounts, outside of probate is to make a seamless transition. When the probate process is involved, the probate court will determine when the assets being transferred at death are available which could take at least nine months if not longer.
3. Loss of long-term tax savings. Your retirement planning comes with significant tax planning strategies. Whether you are planning for deferred taxes for yourself or for future generations, it is important to work with your experienced estate planning attorney to make sure you get all the tax benefits you can. For example, if you plan for much younger, minor beneficiaries as recipients of your retirement accounts, then you may be able to defer taxes even longer than with a beneficiary who is at a similar age to you. 

Overall, caution should be taken when you do not name your spouse as your beneficiary. While not necessarily required for your legacy planning, your spouse should know if he or she will not be the beneficiary of these funds. You may be required to obtain your spouse’s consent in writing under your retirement plan terms. Discuss this with your estate planning attorney to make sure you have covered all the bases for the transfer of this account to someone other than your spouse and will not accidentally end up in probate court.

We know this article may raise more questions than it answers. Our estate planning law firm takes a very different approach from what you might have come to expect. Our goal is to create lifelong relationships with each of our clients, to guide and manage your legacy for the rest of your life. Please contact our offices in Stuart and in Palm City to learn more.