Estate as an IRA Beneficiary
I received a call from a client whose brother just passed away. He was 55 years of age. He named his wife ( who passed away two years ago ) the “Primary” beneficiary to his 401(k) valued at $ 500,000.00 but never named his 3 kids ages 30,27 & 25 as “Contingent” beneficiaries.
I am assuming this leaves the “Estate” as the default beneficiary to the 401(k). My questions are:
1) Does it now have to go through Probate?
2) How does this money now get paid out once through Probate?
I thought it had to be paid out within 5 years or can it be paid out over the remaining LE of the PARTICIPANT subtracting 1 each year there after.
Any thoughts?
Permalink Submitted by Alan - IRA critic on Mon, 2014-12-01 21:52
The plan provisions should be verified. While you are probably correct about the estate, I would verify just in case the children could have been the default beneficiaries under the plan instead of the estate. If the estate is indeed the default beneficiary, the death benefits will be subject to probate and the 5 year rule will apply to plan distributions made to the estate. If the estate is kept open this would still permit the death benefits to be paid out over 6 calendar years, maybe 7 if the estate adopts a fiscal year. That said, the plan provisions most likely require a one time lump sum distribution to the estate resulting in no stretch whatsoever. The remaining life expectancy of the participant only applies if the participant had passed on or after his RBD, but that is also subject to more restrictive plan provisions.