Frequently asked questions
Does a will control who gets my retirement account?
No. A beneficiary designation on the account overrides the will, every time. An ex-spouse still named on a 401(k) form inherits it regardless of what the will says. Reviewing those forms after a marriage, a divorce or a death is the cheapest estate planning there is.
Is inherited money taxable income?
Cash and most property inherited outright are not income to the person receiving them. Inherited pre-tax retirement accounts are the big exception: every dollar a beneficiary withdraws from an inherited traditional IRA or 401(k) is ordinary income to them in the year they take it.
What is the 10-year rule on an inherited IRA?
Most non-spouse beneficiaries must empty an inherited IRA within 10 years of the owner's death. It replaced the old stretch IRA for deaths after 2019. Surviving spouses, minor children of the owner, disabled or chronically ill beneficiaries, and beneficiaries not more than 10 years younger than the owner are treated differently.
Is there a federal inheritance tax?
No. There is a federal estate tax, paid by the estate before anything is distributed, and it applies only above an exemption so high that very few estates owe it. A handful of states levy a separate inheritance tax paid by the person receiving the money, with the rate often depending on how closely related they were.
Do I need a trust, or is a will enough?
A will is enough for many families. A trust earns its cost when you want to avoid probate, keep the terms private, provide for a minor or a beneficiary who should not receive a lump sum, or plan around a blended family. A trust does not by itself reduce income tax on an inherited retirement account.
How long does probate take?
Commonly several months to over a year, depending on the state, the size of the estate and whether anyone contests it. Assets with a named beneficiary or held jointly pass outside probate and are usually available far sooner, which is the practical argument for keeping those forms current.