Final wishes stated in a simple will are admitted to probate at your death. However, all asset transfers are not subject to probate. An IRA is not part of the assets that transfer through probate.
If you have an individual retirement account (IRA) and you name a beneficiary, the beneficiary will assume ownership of your account after presenting a valid original death certificate. That IRA would not be a part of your Probate estate.
Beneficiaries of an IRA must take yearly mandatory minimum distributions. Additionally, they are forced to take all the assets out of the account within 10 years of the date of your death. The probate court has no involvement in the transfers to the beneficiary.
When it comes to taxation, transfers from a Roth individual retirement account are tax-free, and traditional account distributions are taxable.
Proactive Probate Avoidance
Although probate serves a purpose, there are several negatives to the probate process.
- Lack of Privacy: Probate records are available to anyone that is interested. This can be disconcerting in a general sense, and the information can potentially cause hard feelings among heirs.
- Expenses: The expenses that accumulate during probate can significantly reduce the value of the estate.
- Time: Probate will take eight or nine months at minimum in most jurisdictions.
- Court Approval: The court must approve of all asset distributions at the end of the probate case.
A revocable living trust will avoid probate. You don’t have to be concerned about a loss of control, because you would act as the trustee while you are living, and you retain the right revocation.
After your passing, the successor trustee that you name in the document would distribute assets to the beneficiaries outside of probate. You can protect the assets from the beneficiaries’ creditors, and you can provide beneficiaries limited distributions over time.
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