When an IRA owner dies, any IRA asset that remains in the IRA must be transferred to the beneficiary of the IRA. If the IRA owner has not executed a beneficiary designation, the assets must pass in accordance with applicable state inheritance laws. Although inheritance laws can vary substantially from state to state, in most states, when no beneficiaries are named through a beneficiary designation, it means the IRA assets will become part of the IRA owner’s estate upon death, and this generally means probate court. Not only does this method of transfer increase the potential for disputes over ownership of the IRA assets, it can negatively affect the distribution options available to the beneficiary with significant income tax consequences, so while it is not required, it is highly recommended that IRA owner’s use a beneficiary designation form to name beneficiaries.
This document provides insight into the various options that may be available for naming beneficiaries and some best practices that your financial institution may want to consider when setting your policies.
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