When creating a retirement account such as a IRA, 401(k) or other defined benefit plan, an individual is usually (and hopefully) instructed to name at least one beneficiary to the account. Upon the individual's death, the beneficiary (if still alive) will then inherit the account balance without having to go through the probate process.
Sometimes, though, an individual forgets to review and update the beneficiary designations on their retirements accounts. If the primary and contingent beneficiaries predecease the individual or if there is no primary and/or contingent beneficiary listed, then usually the account will revert to the estate and be subject to probate.
But, what happens to the retirement account if 1) no beneficiaries are named or have predeceased and 2) no personal representative is appointed to administer the decedent's estate?
Hawaii Revised Statutes Section 523A-3(14) provides that any property in an individual retirement account, defined benefit plan, or other account or plan that is qualified for tax deferral under the Internal Revenue Code is presumed to be abandoned three years after the earlier of:
(1) the distribution or attempted distribution of the property OR
(2) the date of the required distribution as stated in the plan or trust agreement governing the plan, or as specified in the Interal Revenue Code by distribution shall be nade to avoid a tax penalty.
This means the retirement account will be considered abandoned property and will eventually escheat to the State of Hawaii.
As a general rule of thumb, one should review their estate plan every three to five years to determine whether life changes or new laws merit making revisions to their plan. As part of the estate plan review, one should also examine the beneficiary designations on their retirement accounts to ensure that their primary and contingent beneficiaries are updated and current.
Samuel K.L. Suen is an attorney based in Honolulu, Hawaii specializing in estate planning, probate, conservatorship and guardianship matters.
DISCLAIMER: All content and information is provided by The Law Office of Samuel K.L. Suen, LLLC and is for general informational and discussion purposes only and does not constitute legal advice. Transmission of this information is not intended to create, and receipt does not constitute, a formation of an attorney-client relationship. The information presented at this site is believed to be accurate when made, but may not be complete, is not updated, reviewed or revised on a regular basis. No representations or warranties whatsoever, express or implied, are given as to the accuracy, applicability or validity of the information contained herein. The information may be modified or rendered incorrect by future legislative or judicial developments and may not be applicable to any individual reader's facts and circumstances. You should not act or rely on this information without consulting with a licensed attorney.
To ensure compliance with requirements imposed by the IRS, please note that any U.S. federal tax advice contained herein is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter that is contained herein.
Copyright © 2018 Law Office of Samuel K.L. Suen, A Limited Liability Law Company. All Rights Reserved.