Can an IRA Be Overridden by a Will?

By Michael Keenan

Even though the words, "Last and Final" might appear at the top of your will, that doesn't mean that your will has the final say over where the money in your individual retirement account goes after you die. This is because IRAs are non-probate assets, which means that the beneficiary designation on your IRA determines where the money ends up.

Even though the words, "Last and Final" might appear at the top of your will, that doesn't mean that your will has the final say over where the money in your individual retirement account goes after you die. This is because IRAs are non-probate assets, which means that the beneficiary designation on your IRA determines where the money ends up.

Selecting Beneficiaries

When you open an IRA, you name the beneficiaries of your account. However, as your life changes, where you want the money to go after you die might change. However, if you only update your will, the money in your IRA account will still go to the beneficiaries you originally named. To change your IRA beneficiaries, you must complete a new beneficiary designation form, which is available from the financial institution that holds your IRA.

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Estate as the Beneficiary

You are allowed to name your estate as the beneficiary of an IRA, which would allow your will to control how the assets are eventually distributed. However, this comes with two main drawbacks: First, the distribution would increase the size of your taxable estate, which may result in a higher estate tax obligation. Second, because the money must pass through probate rather than going straight to the beneficiaries, it would delay access.

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Do IRAs Override a Last Will & Testament?

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Does Your IRA Survive Bankruptcy?

When extreme financial hardship strikes, you have the option of filing for bankruptcy protection. Under Chapter 7 of the federal bankruptcy law, a court-appointed trustee seizes any of your assets that are "non-exempt," meaning the law does not protect them from seizure. There are several categories of exempt assets, including the funds you have in an Individual Retirement Account. Although federal and state laws vary with regard to the exemption limit, your IRA account will survive bankruptcy intact.

Living Trusts & Bank Accounts

You can place your bank accounts and other assets in a living trust so they bypass probate when you die. Avoiding probate generally saves time and money for the beneficiaries of your estate. You must physically change the titles of your assets from your individual name to the name of your trust for them to skip the probate process upon your death.

What Is the Law for Beneficiary Designation for Bank Accounts?

Planning for distribution of your assets after your death can be a complex and confusing process. Naming beneficiaries for each of your bank accounts is perhaps the simplest, and most important, step you can take to protect your assets and ensure they are passed properly to the intended recipients following your death.

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