That’s a common question I get. Here’s the example: we are handling the probate estate for a deceased individual and we are discussing the assets: house, bank account, CD, car, etc. Then we also inquire about retirement accounts (IRA or 401(k) for example) and the client will state “oh, they had beneficiaries listed so they are outside probate”. And then that leads to my somewhat confusing answer: Sort of.
What I mean is this:
- The beneficiaries listed receive those accounts directly. They are not controlled by the provisions in the Will or by intestacy (i.e., no will). The personal representative (whether executor or administrator) does not manage those accounts.
- BUT, they are reported on the Report and Inventory that is filed with the court. That means we need to identify and list the account, the value at death, and the beneficiaries of that account. The part that gets people upset is that the court and probate costs (court costs, attorney fees, executor fees) are calculated on all assets (except life insurance) on the Report and Inventory. Thus, those retirement accounts add to the calculation of the costs.
Normally the next question is “why” which is harder to explain but like I told my girls when they were younger: just because. Some additional reasons are that inheritance taxes, estate taxes, and the associated returns utilize that information. So we have additional work as a result of those assets. We also typically provide some assistance on handling those items.
So, in short, they are part of the probate process but not controlled by the probate process.