Typically, a spouse who has not been named a beneficiary of an individual retirement account (IRA) is not entitled to receive, or inherit, the assets when the account owner dies. However, some exceptions exist.
- In general, a spouse who hasn’t been named a beneficiary of an IRA isn’t entitled to inherit it.
- In community property states, however, a spouse might be entitled to some of the IRA’s assets under certain circumstances.
- If the IRA owner dies without a will and without naming a beneficiary, the account would likely go to a surviving spouse, according to laws of intestate succession.
A Beneficiary Designation Trumps a Will
An IRA is not considered part of your estate in the way that other financial accounts and assets are. Specifically, it is not governed by the provisions of a last will and testament.
Generally speaking, the person you designate as the IRA's beneficiary (which you usually do on a form when establishing the account) dictates who inherits the IRA, not your will. Even if you did name someone in a will, the IRA designated beneficiary would supersede it.
Only if you fail to designate a beneficiary at all (or the beneficiary has predeceased you) does the IRA become part of your estate, and subject to a will's provisions. No one else is entitled to receive any share of the IRA unless the named beneficiaries choose to disclaim their portions.
One of the benefits of an IRA, from an estate planning perspective, is that assets can be transferred directly to beneficiaries without having to go through probate.
IRA Beneficiaries in Community Property States
There are exceptions, however, in community property states under certain conditions. Under the laws of these states, the spouse must be the IRA's primary beneficiary, unless they consent to another party being so named.
If the IRA-holder names someone else without the spouse's approval, the spouse may then be entitled to a portion of the IRA when the original owner dies, regardless of the beneficiary designation.
The number of community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin). Alaska is an "opt-in" because it gives both spouses the option to designate their property as community property.
If the contributor resides in a community property state, the spouse needs to check with the IRA custodian to determine whether the proper approval was obtained. If the proper approval was obtained, then the designated beneficiaries will be able to take possession of your share of the IRA.
Take note, though, that even if the contributor resides in a community property state, the IRA (or a portion of it) may still not be subject to the community property laws if the balance was accrued before they were married. To be sure, check with a local attorney who specializes in estate planning or inheritance laws, as state statutes vary.
Exceptional Circumstances for Inheriting IRAs
What about the "no-designated beneficiary" scenario described earlier? If the IRA owner failed to name one and resided in a community property state, then the spouse would be entitled to the account, as it would become part of the deceased's regular estate.
Here is another scenario. If the account owner doesn't name any beneficiaries and dies without a will, the IRA is subject to state "laws of intestate succession." While these vary, usually, surviving spouses and children top the list to inherit assets—which would include the IRA funds.