When somebody close to you passes away, as you deal with the grief, you also may be wondering what happens to the deceased’s assets and whether or not any retirement accounts go through probate. The emotional trauma of loss may be compounded by the financial trauma, but there is reassuring news regarding those retirement accounts, provided certain mistakes are avoided in choosing beneficiaries.

Do Retirement Accounts Go Through Probate?

First, it would help to know what probate is, right? When a person passes away, most of his or her assets are basically frozen until the will is validated, all debts are paid and beneficiaries of the will are identified – the legal process of probate. That process can happen rapidly, or it can feel like it takes centuries. If you are a beneficiary, you may feel any money due to you is like the woolly mammoth, frozen in ice for eons.

What's useful about retirement accounts is that these assets generally don't go through the probate process. This includes IRAs, 401(k)s, 403(b)s and a number of less common account types. 

The reason: when someone opens a retirement account, part of the paperwork includes naming beneficiaries. You can name one – or as many as you like. When you pass away, the companies administering your retirement accounts must hand over those assets to the beneficiaries listed on the account. There’s no probate process because the contract serves as the will for these assets. 

More good news: since the retirement accounts don’t go through probate, creditors can’t get their hands on the accounts to collect debts. 

Don’t Make These Mistakes

There are ways that retirement accounts can end up in probate – and they have to do with an easy-to-make misstep: complicating the beneficiary designation. Here is a look at beneficiary-designation mistakes that can land your accounts in probate.

Not naming your spouse as the beneficiary. In community property states – Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin and, in some cases, Alaska – your spouse is entitled to half of anything you add to your retirement account while you’re married. 

That means that if you have other beneficiaries in addition to (or instead of) your spouse, your spouse can file a claim to part of the assets, and that will send the accounts to probate court. If you have a 401(k), you are required to name your spouse as beneficiary in all states unless he or she signs a waiver. 

Naming a trust – or your estate – as the beneficiary. Any money distributed through your estate will go through probate. That means that those bill collectors will get their share before the beneficiaries of the estate see their share. 

Naming a minor as a beneficiary. To avoid probate in this situation, have somebody lined up to manage the money for the minor until he or she is an adult. Any financial institution can help with this. Just mention the Uniform Transfers to Minors Act (UTMA) and they’ll know what to do. 

Forgetting to name alternate beneficiaries. These are people who can take the distributions if the primary beneficiaries aren’t able to accept the gift. 

Not keeping your beneficiaries up to date. For example, if your spouse passes away prior to you and no other beneficiaries are named, the account will go to probate. Or, your ex-spouse could take the funds if you hadn't remarried or if your new spouse passes away prior to you.

The Bottom Line

Your retirement accounts will smoothly and painlessly pass to the beneficiaries named on those accounts as long as you don’t make the mistakes above. Set aside time once a year to review the beneficiary information on each account. This ensures that at least some of your estate passes to your loved ones without the complications and waiting of probate.