Transferring Assets With Designated Beneficiaries & the Legal Process
Some assets may name designated beneficiaries, negating the need for a will or the formal probate process to transfer the asset. Even if some of a decedent’s estate must still pass through probate, assets with designated beneficiaries will likely make the process shorter and more manageable. However, designated beneficiaries need to complete other processes, like paying taxes on inherited assets. Debts attached to certain property, such as a mortgage or a car loan, are usually transferred with the property to the beneficiary.
Most retirement accounts, such as 401(k)s, 403(b)s, and IRAs, name a beneficiary. An executor may find a beneficiary designation on account statements or by contacting the plan administrator or the decedent’s employer if it is an employer-sponsored plan. Beneficiaries should be able to receive direct payments from the account without going through probate (unless the estate itself is the beneficiary). They may also be required to take minimum distributions. Pension plans with named beneficiaries usually function in the same way.
Depending on state law or the terms of the beneficiary designation, divorce may terminate a beneficiary’s right to inherit as a designated beneficiary. However, state law cannot affect assets governed by federal law, so beneficiary designations on assets like 401(k) plans may not be affected by divorce.
Health Savings Plans
Beneficiaries may be entitled to receive funds from a health savings account (HSA) after filing the required paperwork with the plan administrator. If the beneficiary is a surviving spouse, they may be able to continue the HSA and withdraw money tax-free for qualifying medical expenses. If the beneficiary is not a surviving spouse, the account will no longer be an HSA, and the full market value will be included in the beneficiary’s gross income for the tax year of death.
Life Insurance Proceeds
Life insurance proceeds will pass directly to the beneficiary named on the policy. A designated beneficiary must file a claim with the life insurance company to receive payment. They will most likely be required to provide a certified copy of the death certificate along with the claim form.
A bank account may have a payable-on-death (POD) designation if the decedent previously executed a POD form with the bank. An executor may find the form or other evidence of the POD designation, such as account statements or other bank records. Once the beneficiary of the POD account has been identified, they should be able to claim the account with the bank without going through probate.
If property with a payable-on-death beneficiary is jointly owned, it will only pass to the payable-on-death beneficiary once both owners have died.
Income and Securities
A surviving spouse or a decedent’s children may be entitled to receive any of the decedent’s unpaid income or wages. Stocks or mutual funds with transfer-on-death (TOD) provisions or co-owned or payable-on-death savings bonds may pass to beneficiaries automatically. Brokerage statements or the securities themselves may identify the beneficiary. A beneficiary of a bond may have it reissued in their name to add a co-owner or POD beneficiary of their own.
Some, but not all, states provide transfer-on-death registration for vehicles. If the decedent registered a TOD beneficiary, the vehicle’s registration will name them. The TOD beneficiary will be automatically entitled to receive the vehicle, but they must reregister it in their name. If a state does not allow TOD registration, it may still provide other avenues to transfer vehicles without probate.
Many states provide transfer-on-death deeds for real estate. A TOD deed may be recorded in the county where the property is located. A beneficiary may be required to execute legal documents to confirm the transfer, but they will avoid probate. More commonly, real estate may be held in joint tenancy or tenancy by the entirety, or as community property with right of survivorship. In this case, the property will transfer to the co-owner in much the same way. Regardless of whether a surviving spouse (or sometimes children) are named as co-owners or beneficiaries, they may still be entitled to inherit the property if it is their primary residence (or their "homestead").
Beneficiary designations for assets that pass outside a will usually trump any provision for the same asset within a will, but some states have exceptions, like Washington’s "superwill" statute. If a beneficiary designation conflicts with the terms of a will, an executor may wish to seek the advice of a probate attorney.