This isn’t a blog about ghosts or spirits reuniting after death, but rather about what happens to your financial accounts after death. When we are notified about a client death we are required to inform the broker immediately and your accounts are “frozen” for trading or removing any assets. The assets stay frozen until they are transferred to their rightful owner.
Retirement accounts pass according to the beneficiary designation. Once a death certificate is provided, the assets can be moved to Inherited IRAs for each beneficiary. The inherited IRA owners must begin mandatory distributions the following year according to their actuarial age (established by the government). However, spouses who inherit retirement accounts may treat them as their own IRAs rather than Inherited IRAs. This means they take required minimum distributions at age 70 ½. Distributions from retirement accounts are fully taxable (except for Roth accounts which are tax free).
Trust accounts pass according to the language in the trust. With a death certificate, they also can pass fairly quickly. All other types of accounts must be moved to an Estate account. The broker requires a death certificate and a Letter of Testamentary from the Executor. The Executor must take the will to the local courthouse and a Letter of Testamentary is given that affirms he/she is the legitimate executor and is authorized to open an Estate account and make disbursement requests. The Executor must obtain an Estate Tax ID to open the Estate account. This is the probate process and it can be somewhat time consuming. An attorney is usually required
The narrative makes it sounds fairly simple, but beneficiaries are usually over whelmed by the process. It is important that people of all ages have their estate planning documents in order and up-to-date. Also, ensure that your Executor knows where your documents are kept. Please contact your advisor if you have questions or would like more information.
Barbara Gray, CFP®