When you name a human beneficiary on an individual retirement arrangement (IRA), you give your heirs a number of rights that they would not have if you failed to name the beneficiary. If you don't name the beneficiary, probate courts must dispense the assets according to the will, if one exists, and then only after a lengthy legal procedure. Named beneficiaries, on the other hand, receive funds in a matter of days, not weeks and months, because IRAs pass to named beneficiaries through contract law, and bypass the Ohio probate system, which can hold funds for months and even years while the courts negotiate the probate process.
1. Contact the investment company that administers your IRA and ask for a form to appoint or change a beneficiary.
2. Fill out the form. You may need to have social security numbers handy, to facilitate the dispersal of the funds. If the beneficiary is a child, he cannot inherit money directly, until the age of 18. You may want to establish a Uniform Trust to Minors Act (UTMA) fund. This is a streamlined way for you to appoint a trustee who will safeguard and direct the expenditure of the funds for the child's benefit, until the child reaches legal age. Unlike other forms of trusts, you can create an UTMA by using the beneficiary form, without having to pay an attorney to establish the trust. Finally, consider who you want to receive the money in case you should survive your primary beneficiaries. You may wish to appoint secondary beneficiaries, in the event your primary beneficiaries are not alive to receive the money. For example, if your spouse is the primary beneficiary, who should receive the funds if you both die at the same time?
3. Return the completed form to the investment company. Retain a copy for your records.
- Note that estates of less than $35,000 in net value are exempt from the probate process in Ohio. The same is true of estates with less than $100,000 if the only heir is the surviving spouse.
- If you do not name a beneficiary, under Ohio law, your creditors have first claim on any IRA assets that pass through probate. If you name a beneficiary to the IRA, the assets pass directly to your heirs. Creditors would have no recourse to attach IRA assets that bypass the probate system in Ohio.
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