What You Need to Know About Individual Retirement Accounts and Estate Planning

Individual retirement accounts, most commonly referred to as IRAs, can cause problems in estate planning if you do not manage them correctly. Most married people will put the spouse as their primary beneficiary on their IRA; however, they might not worry about the IRAs in the process of the estate planning since they already know they have established a beneficiary. This, however, could be a big mistake.

A little bit of estate planning established with the help of a knowledgeable attorney can go a long way towards resolving common challenges that arise if you were to suddenly pass away. If the primary beneficiary passes away before the owner and the IRA owner had not updated beneficiary designations or named a contingent beneficiary, the IRA will end up in the probated estate of the deceased individual and is subject to all of the formalities, delays and costs of a probate proceeding.

There are a couple of different options available to people in the process of estate planning including naming grandchildren, children or other non-spouse individuals as a beneficiary of your IRA to enable them to have a direct rollover of an eligible retirement plan to an inherited IRA. Another option is to name a trust as the beneficiary but this needs to be done with the help of an experienced estate planning lawyer.