Does a Final Will & Testament Have Precedence Over a 401(k)?

By Matthew Derrringer

Not all property is equal in a person’s estate. Property can fall into different categories, with some property required to go through probate while other assets, such as retirement accounts, pass outside of the probate process. As a retirement account, a 401(k) falls into the category of “nonprobate” property. A 401(k) has a named beneficiary who will receive the assets in the account upon the death of the account holder – regardless of whether the account is mentioned in a will.

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.

Probate Process

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.

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Nonprobate Property

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.

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Can an Estate Be a Named Beneficiary?

You can opt to have your estate receive an account that requires a beneficiary designation. A beneficiary designation simply means that you provide written instructions to the account administrator as to who will get the money from that asset when you die. The kinds of accounts that usually require beneficiary designations are life insurance policies, IRAs, pensions and other retirement accounts. A variety of beneficiaries exist that you can name: an individual, charity, trust or your estate. If the estate is the named beneficiary, the asset must go through the probate process. If the beneficiary is an individual, charity or trust, the funds are typically released directly to the named beneficiary and do not pass through probate.

Probate Account vs. Probate Inventory

During the probate process, the estate's personal representative, often called the executor, is required to complete multiple steps before inheritances can be distributed and the estate closed. Two of these steps are a probate inventory and a probate accounting. Though similar in some respects, the probate inventory and the probate accounting have distinct differences and purposes.

What Is a Universal Heir?

Creating a will gives you the opportunity to dictate who gets what after you die. After paying off your debts, the probate court distributes any remaining assets to your loved ones according to the directions you provided in your will. If you leave all of your remaining assets to one person rather than stipulating that the court divide your assets between more than one party, the beneficiary of the inheritance is your “sole” or “universal” heir.

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