Are Retirement Accounts and Life Insurance Part of Probate, and Do I Need a Will or Trust?

Listing a beneficiary(s) on retirement and life insurance accounts is not only smart, but many financial institutions require it. It’s common to ask: If I’ve named beneficiaries, do I really need to go to the trouble of creating a will or trust to avoid probate and the possibility of needing a New York probate attorney?

The answer is: In most cases, yes. Read on to learn why.

Two men negotiating over a will

Why You Need a Will

Probate is the legal process through which a deceased person’s estate assets are distributed to beneficiaries and heirs. Designating a beneficiary(s) on your retirement accounts and life insurance policy can help you avoid probate since beneficiary designations are legally binding and supersede your will (if you have one).

Your beneficiaries will only need to provide a death certificate to the administrator of the IRA/401(k) or insurance policy in order to have the account/assets transferred.

There’s a lot more to consider than whether assets from retirement accounts or insurance policies will easily pass to your beneficiaries without the need for probate after you die.

Who will sign your tax return? Who will pay your bills and deal with your creditors?

If you’re married, you may think the obvious answer is your spouse. The reality, though, is that your spouse can’t automatically take legal steps on behalf of your estate. You need to designate them or someone else as your executor, and creating a will is the way to do that. Your executor effectively becomes your estate’s legal representative.

Here are other reasons to create a will and not rely on beneficiary designations alone:

  • Financial institutions are not infallible; they may lose/misplace records listing your beneficiaries.
  • You may forget to update beneficiaries after major life changes, such as marriage, divorce, or the birth of a child.
  • Your attorney loses all power once you die; only an executor/estate trustee can manage your estate after you die.
  • What if you and your spouse die at the same time (in an accident, for example) and your spouse is the beneficiary on your accounts? A will allows you to list backup beneficiaries.

In short, everyone needs a will. Relying on beneficiary designations is not enough.

Last will and testament papers with pen and glasses

Why You Also Need a Living Trust

A will is an important document for indicating who should get what when you die, but creating a will doesn’t guarantee your estate won’t go to probate. In fact, a large percentage of estates go to probate even with a will. That’s why you need a living trust.

In New York, creating a living trust can help you avoid probate for virtually any asset you own, including real estate, bank accounts, retirement accounts, vehicles, household goods, and other assets.

You’ll need to transfer ownership of your property to yourself as the trustee of the trust and name someone as your successor trustee after your death; your successor trustee will have the authority to transfer your assets to beneficiaries named in your trust without the need for probate court proceedings. An estate attorney can help you create a living trust.

What if I Don’t Want to Create a Will or Trust?

If you don’t create a will or trust, there are still ways to avoid probate for most of your assets. Assets that don’t need to go through probate include:

  • Retirement accounts—for example, IRAs and 401(k)s—for which a beneficiary was named
  • Life insurance proceeds
  • Funds in payable-on-death (POD) bank accounts
  • U.S. savings bonds with a payable-on-death designation
  • Pension plan distributions
  • Wages/salaries/commissions owed to the deceased person
  • Vehicles and household goods that are passed on to immediate family members under state law
  • Property held in joint tenancy with right of survivorship
  • Real estate held in tenancy by the entirety—a form of joint ownership allowed only for married couples in New York
  • Property held in a living trust

Also, New York offers simplified probate proceedings for “small estates.” If property (excluding real estate and funds that must be set aside for surviving family members) has a gross value of $30,000 or less, you can use the simplified small estate process in New York.

Even if you have significant assets, you may still be able to use the simplified process. For example, suppose an estate consists of a $500,000 house that’s jointly owned with right of survivorship, a $100,000 bank account with a named payable-on-death beneficiary, a $200,000 IRA, and a vehicle owned solely by the deceased that’s worth $15,000. The only asset subject to probate, in this case, is the vehicle; theoretically, then, this estate could use the simplified probate process.

Revocable Trust typed on paper

Why Naming Beneficiaries Is Not Enough

Going back to the original question about whether beneficiary designations are enough for retirement and life insurance accounts … if you’ve designated beneficiaries for these accounts, the assets can be transferred to them without a will or trust.

This doesn’t resolve the issue of not having an executor to sign tax returns and deal with creditors and other issues. If you don’t have a will or trust, the probate court will have to appoint an administrator for your estate. In the state of New York, the law gives spouses priority. You may not want your spouse to act as your executor after you die, or your spouse may not want that role—this is an important consideration.

It’s also important to consider who your beneficiaries are. If your beneficiaries are very young, for example, you might want account proceeds to be held in a trust until they’re older and mature enough to handle an inheritance, especially a large one. When you create a trust, you designate a capable trustee to invest and distribute the assets in the best interests of your beneficiaries.

The bottom line: The best way to ensure the smooth transition of assets after you die is to create a will and revocable (changeable) living trust.

Get Expert Help with Estate Planning and Probate Administration

Navigating trusts and estates law and understanding probate requirements is complicated. We can help.

Joseph A. Ledwidge PC is an expert New York probate attorney representing executors, fiduciaries, heirs, beneficiaries, and other interested parties. He and his associate counsel have 32 years of combined experience and can help you avoid probate through skilled use of trusts and other means.

Call us for a no-obligation consultation today at (718) 276-6656. We serve clients throughout the state, including Jamaica, NY, Queens, NY, and Brooklyn, NY.

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