Is an IRA account with beneficiaries listed considered part of the estate?

A fellow caregiver asked...

My mother recently passed away and I am the execuator. The will states that the estate should be divided equally among the children. There are a few accounts that have beneficiaries listed (some of but not all the children are listed as beneficiaries) that did not have to be probabted. Is it fair to equally divide only the assets that are probated?

Expert Answer

You mother's will provided that he estate should be divided equally among her children. However, she had some financial accounts that named beneficiaries for those accounts, and not all the children were listed as beneficiaries on each account. You ask what is fair here.

Good question. The legal status seems clear to me. By law, a will does not control financial accounts that do not have to be probated, such as the above accounts of your mother. Those accounts must legally go to who is named as the beneficiary or beneficiaries for each account.

However, this does not seem fair in light of your mother's expression in her will that she wanted her estate to be divided equally. In other words, what is legally required is not fair. [Not at all the first time that has happened.]

If all the children want to make things fair, I think it could be done. First, if large sums aren't involved, each of the children who now receives more than his or her "fair" share could give some of that share to the children who received less. A person can legally give $13,000 a year (to each "less-fair" child) without any income tax consequences.

If larger sums are involved, the beneficiaries under each financial account could simply disclaim their rights to inherit under that account. A disclaimer simply means that the disclaiming person says, "I decline to accept that gift/inheritance." No one is legally obligated to accept an inheritance. If all the beneficiaries under your mother's financial accounts disclaim those inheritances, those inheritances would then pass under your mother's will"”and so be divided equally.