Final Will & Testament
A will is the bedrock of any estate plan, and the document has many uses. One of the primary purposes of a will is to direct how the assets in a person’s estate are to be distributed after his death. The clearer the language used in the will, the less likely there will be contentious probate litigation between heirs, named beneficiaries and other relatives. A will typically only addresses “probate” property, which includes assets whose ownership does not automatically transfer upon death, such as solely-owned real estate or automobiles. Nonprobate property is not affected by the terms of a will, even if those assets are mentioned in the will itself.
When a person dies having left behind a valid, correctly-executed will, the probate process begins. This process entails the named executor of the estate marshaling a decedent's assets and paying creditors and applicable taxes, distributing any remaining property to the people named as beneficiaries in the will. For many simple estates, this process can be completed within a few months, while larger, more complicated estates – including those in which the will is being contested – can take much longer, possibly even a few years. During that time, probate property is tied up in the court process and mostly unavailable to beneficiaries, while nonprobate property is often distributed almost immediately.
There are many different types of nonprobate property and retirement accounts fall into this category. Individual retirement accounts, 401(k)s and most other forms of retirement plans are set up with a named beneficiary attached to the account. Most people set up retirement accounts for their own use, but naming a beneficiary ensures funds pass directly to that person upon the account holder's death, if there are any funds left in the account at that time. Life insurance policies and joint bank accounts are other common forms of nonprobate property.
Advantages for Beneficiaries
The biggest advantage of being a named beneficiary of nonprobate property, like a 401(k) account, is that this type of property will not get tangled up in the probate process. The funds in a 401(k) account, for example, will be available to the named beneficiary almost immediately, even if the beneficiary is also designated to receive property being distributed through the probate process.