(NewsNation) — Securing life insurance helps a person protect their loved ones and ensure they’re cared for, should anything happen to them.
When a buyer acquires life insurance, they designate a beneficiary, the recipient they want to receive the policy’s death benefit when they die. There are two different options offered when naming a beneficiary: Primary and contingent.
But what if someone has not selected a beneficiary? What happens to their bank account? Retirement savings? Property?
What happens to a person’s bank account without a beneficiary?
If the original owner of the bank account dies without a beneficiary, their money becomes part of their estate and goes through the probate process.
“In most states, probate law passes your assets first to a spouse, then to immediate family in order of relation. If you have no close relatives, usually defined as far out as first cousins, the state takes possession of your assets,” says SmartAsset.com.
If an account was jointly owned at the time of the original owner’s death, the surviving co-owner immediately takes full ownership. Some banks can have the original owner removed from the account if the surviving co-owner provides a copy of the deceased owner’s death certificate or an affidavit of death.
In addition, brokerage accounts without a designated beneficiary are assured to become part of the estate of the deceased.
What happens to a person’s retirement account(s) without a beneficiary?
Just like the bank account, the retirement account of a deceased person with no selected beneficiary will become a part of their estate or shared between their heirs.
“IRS rules require that, if you die before reaching age 70 ½, the IRA assets paid to your estate must be distributed within five years,” according to MeetBeagle.com.
“While your heirs will share in your IRA assets, they will likely inherit a smaller portion since a significant portion of the funds will go to income taxes.”
Back in January, the U.S. Department of Labor’s Employee Benefits Security Administration announced a policy to provide retirement plan fiduciaries with an option to help manage small benefit amounts owed to individuals who cannot be located.
“This policy gives fiduciaries an additional option for handling small outstanding retirement benefit payments owed to missing participants and beneficiaries,” said Lisa M. Gomez, EBSA Assistant Secretary for Employee Benefits Security Lisa M. Gomez.
What happens to a person’s property without a beneficiary?
Without a beneficiary, whether in a will or account designation, a deceased’s property’s ownership becomes the responsibility of state government to determine who inherits the property.
In most cases, the property’s succession follows a strict order based on surviving relatives, starting with a spouse, then children, siblings, followed by extended family members.
What if someone becomes single or estranged from possible beneficiaries?
“A person in this situation has a choice: charity,” says Epic Capital Wealth Management. “Perhaps a charitable or non-profit organization deserves the assets. Perhaps a college or university would be a worthwhile destination for them. Choices exist, and those who are single can explore them as they consider their estate.”
