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Is a 401k Distributed Pursuant to your Will and is it Part of a Probate Estate in Tennessee?

Posted on Mar 21 2014 12:45PM by Attorney, Jason A. Lee

One thing a significant amount of people do not realize is that a 401K is not necessarily part of someone’s estate in Tennessee.  As a result, almost always 401k assets are not distributed pursuant to the intentions expressed in your will.  Some people believe a 401k passes pursuant to whatever terms are in their will but this is simply not true.  As a general rule, when someone dies, their 401k proceeds are not distributed under the will.  They are instead distributed based on the beneficiary designations in the 401k.  This is important to remember when constructing an appropriate estate plan.  It also should cause you to check your beneficiary designations periodically to make sure they match your intentions. 

 

However, there are some circumstances where the 401k could be paid to the estate (and therefore pursuant to the will).  For instance, if somebody does not list any beneficiary on the 401k, then the proceeds would be paid into the estate (unless the 401k plan documents dictate otherwise).  Additionally, people can list their estate as the beneficiary for the 401k.  There are only a very limited number of circumstances where this would be appropriate.  Due to the tax and other consequences of such a designation, it is almost always better to list an individual as the beneficiary of a 401k. 

 

Due to the fact the 401k money is generally distributed pursuant to the beneficiary designation, the 401k assets are not part of a probate estate (however, they are still counted for purposes of the Tennessee Inheritance Tax and Federal Estate Tax).  This is usually a positive so you can avoid the claims of creditors in a probate estate and so the money can be distributed to the beneficiaries faster.

 

As a result, when planning how your assets will be distributed to your heirs or children, it is important to keep this information in mind.  If you desire to have your assets split equally among all of your children, for instance, then make sure your beneficiary designations on your 401k and life insurance policies reflect this intention.  Sometimes people have their will done correctly where it shows that all their assets should be split equally among their children, but they do not properly designate the beneficiaries on their 401k or life insurance policy.  This can cause an unequal distribution of assets after your death.  This is why it is important to have a comprehensive discussion with a Tennessee estate planning attorney on your assets and how your desire your assets to be distributed upon your death.

 

Follow me on Twitter at @jasonalee for updates from the Tennessee Wills and Estates blog.

TAGS: Life Insurance, Retirement plans - 401k etc., Wills, Creditor claims, Probate Assets
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Jason A. Lee is a Member of Burrow Lee, PLLC. Contact Jason at 615-540-1004 or jlee@burrowlee.com for an initial consultation on wills estate planning and probate issues.

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Tennessee Wills and Estates Blog
Jason A. Lee, Member of Burrow Lee, PLLC
611 Commerce Street, Suite 2603
Nashville, TN 37203
Phone: 615-540-1004
E-mail: jlee@burrowlee.com

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