How to Pass Along an IRA to Your Heirs

By Maggie Lourdes

An individual retirement account is a savings tool that offers tax benefits to its owner. When an owner of an IRA dies, her heirs are entitled to its value. Different estate planning mechanisms exist for passing an IRA to a decedent's heirs. State laws govern estate planning and may vary slightly in different jurisdictions. Also, how an IRA passes on death raises important tax consequences which should be investigated and considered before making a final choice.

Pay-on-Death Beneficiaries

A pay-on-death, or POD, beneficiary can be named on an IRA. This allows it to pass at the owner's death by simply presenting a death certificate to the financial institution where it is located. Naming a beneficiary avoids probate court. This saves a beneficiary time, court costs and potential legal fees. A representative at the bank or brokerage house where the IRA is located can easily facilitate the naming of a beneficiary to the account.

Passing Through Trusts

An IRA may also be titled in a trust which names beneficiaries after the trust maker's death. Any asset owned by a trust, including an IRA, bypasses probate court. A trust can lay out specific terms for payment. For instance, it can direct trust assets be paid to a beneficiary over time versus a lump sum. Larger IRAs can be set up to benefit many, future generations of a decedent.

Protect your loved ones. Start My Estate Plan

Inheritance by Will

An IRA can also pass by a decedent's will. A will must be probated, which delays payment to the decedent's named heirs. It also can be costly since estate debts, legal fees and court costs must be paid from the decedent's estate before assets can be distributed to heirs. Passing an IRA through a will is wise if no trust or POD beneficiaries exist, in that it passes the IRA to a decedent's desired heirs.

Intestate Succession

An IRA can also pass according to state law. When the owner of an IRA dies with no will or other estate planning directions, it will pass by intestate succession. The spouse is generally first in line to inherit a decedent's estate. If the decedent also has children, state law may require they share the asset. If a decedent leaves no spouse or children, intestate succession defaults to her next closest relatives. If no relatives survive a decedent, an IRA is turned over to the state treasury.

Protect your loved ones. Start My Estate Plan
How to Transfer Property Title When Death Occurs


Related articles

How to Name a Trust as Successor Beneficiary of an Inherited IRA

When someone creates an Individual Retirement Account, she names a beneficiary to inherit whatever remains in the account at her death. Depending on the IRA plan document or the rules of the custodian, the IRA owner or the IRA owner's beneficiary may be able to name a successor beneficiary for any remaining account balance at the primary beneficiary's death. This can be an individual or individuals, the decedent's estate or a trust. One advantage to naming a trust as successor beneficiary is control over how and when distributed assets will be paid out to heirs. For example, if, as a primary beneficiary, you want your child to receive your undistributed IRA inheritance, but don't want her to have access to those funds until age 21, the IRA account will be distributed to the trust based on IRS distribution rules, however, the trust document will specify that the trustee should not distribute those funds to your child until she reaches age 21.

Is a Living Trust Liable or Subject to Probate?

A living trust holds assets that are managed by a trustee for intended beneficiaries. Also called a revocable trust, it differs from other trusts in that the trust creator, or grantor, can also serve as the trustee and can make changes to, or even revoke, the trust in its entirety during his lifetime. Living trusts are attractive because the grantor retains ultimate control over his assets while he is alive, but they are most commonly used to avoid probate.

Inherited IRA Beneficiary Management Guide

When someone dies with money still in an IRA, the money passes to the named beneficiary of the account. The Internal Revenue Service has strict rules regarding distributions to beneficiaries. Knowing your options for how to treat your inherited IRA will help with tax planning and avoiding unnecessary penalties.

LegalZoom. Legal help is here. Start Here. Wills. Trusts. Attorney help.

Related articles

Is a Living Trust Good in All States?

Living trusts are a commonly used estate planning tools, because they are flexible and recognized in every state. The ...

Trusts & Last Wills in the State of Oklahoma

Estate planning helps individuals who own assets control how those assets are disposed of upon their death. There are ...

What Items Should Be Put Into a Living Trust?

A living trust is created during a person's lifetime and comes in two types: revocable and irrevocable. A revocable ...

The Advantages of Changing a Bank Account Title to a Living Trust

A living trust, which is created during the grantor's lifetime, is an estate planning tool used as a holding area for ...

Browse by category
Ready to Begin? GET STARTED