If you’re trying to get your financial affairs in order, it’s important to know which accounts can be probated. Your retirement accounts can go into probate after you pass away. However, if you choose the right beneficiaries during the estate planning process, you can save your loved ones some hassle. If you’re an Illinois resident, here are some important things you should know.
Shielding your retirement accounts from probate
When someone dies, most of their assets are not released until their will has been validated, their debts are paid off, and the decedent’s beneficiaries are identified. This process is known as probate, which can be expedient but sometimes takes months or even years.
Retirement accounts such as 401(k)s, 403(b)s and IRAs can bypass the probate process. Less common types of retirement accounts can bypass probate as well. When someone opens this type of account, part of the documentation includes naming as many beneficiaries as the account holder wants.
Estate planning also dictates that when the account holder passes away, the custodian of the account must give the assets to the beneficiaries. A contract between the custodian and account holder is used instead of a will for the account assets, which keeps them out of probate. This also means that creditors cannot access the funds to settle debts.
Avoiding beneficiary selection mistakes
There are a few estate planning issues that could land your retirement account in probate. One of the main missteps is naming the wrong beneficiaries or not naming the beneficiaries you prefer.
Don’t forget to name your spouse if you don’t live in a community property state. Since Illinois is not a community property state, you’ll need to make it clear that your spouse is a beneficiary on your retirement account. No matter what state you live in, you’ll have to name your spouse on your 401(k) unless your spouse signs a waiver.