Distribution of 401K

Submitted by Sarah Hale on Tue, 2020-03-10 13:49

Recently my uncle passed away. He did not have a legal will submitted. He has no spouse or children. The direct relatives are my older brother, myself, and he had half brother. I was contacted by my brother’s attorney and the plan is for both my uncle (deceased’s half brother) and myself to sign my older brother as executive of estate. I am wanting to know if we sign these documents if my brother is legally bound to give us what we are supposed to receive. My uncle is getting 1/4 of the estate, and my brother and I are splitting the rest. He passed away and lived in Texas if that makes a difference. -Thanks!



Submitted by Alan - IRA critic on Tue, 2020-03-10 16:47

  • Presuming that the 401k plan has confirmed that the default beneficiary under the plan is uncle’s estate, anyone appointed as executor (could be a professional executor as well) is required by law to administer the estate in the usual manner, eg paying estate debts, paying any taxes due, final medical bills etc. What is left is distributed out of the estate to the beneficiaries under the state intestate rules as outlined in the state probate code. The executor can be held personally liable if assets are distributed contrary to state law. If the split you described is consistent with Texas probate law, then that how it must be split. Of course, the executor can also charge an executor fee, which also might be subject to limitations under the probate code for Texas.
  • Since this is a 401k account which cannot be rolled to an inherited IRA when the estate is beneficiary, the plan will make a lump sum distribution to the estate. The executor will first have to provide proper papers (perhaps letters testamentary) and a death certificate to the plan to title the 401k as inherited before the plan can make that distribution.  Therefore, hopefully your brother is able to comply with the technical and legal requirements, or hires a professional firm to do so. Once the estate receives the proceeds, the executor must pay all estate related expenses and executor fees, so a distribution of each share to beneficiaries from the estate is usually the last step. This might take awhile depending on the number of issues the executor must deal with.

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