Many in Michigan believe that a will is the be-all, end-all of estate planning and the final words in how one's assets will be distributed after passing. However, several types of assets aren't covered by a will, and IRAs are one of them. Independent of a will, an retirement account's assets are distributed based entirely upon beneficiary designation forms which are most likely completed at the time the account is set up. The designations aren't set in stone; they can be changed at any time by amending the beneficiary forms.
Retirement account funds can be left to anyone the owner chooses. They can be relations, friends, a charity, a school, or pretty much any person or legal entity. Unlike a 401(k), IRA funds do not require a spouse's permission to be left to someone other than the spouse. IRAs are one of the more freely gifted types of asset.
While naming one's own estate may seem like a good way to get around needing to have a special designation outside of a will, it can cause problems. Individuals or organizations that are left a part of an IRA can continue to draw on it over time, keeping intact all of the tax benefits inherent in retirement accounts. Left to an estate however, the entire drawdown must be made in five years, leading to potentially harsh financial penalties.
Making sure that everyone receives what they were meant to after passing is a difficult and complex process that takes more than just keeping a will on file. For estate administration, hiring a probate lawyer can ensure that everything is handled properly. From working through the legal and financial implications, to filing everything properly and handling distribution after the fact, a probate attorney can be invaluable.
Source: Forbes, "How To Leave Your IRA To Those You Love", Deborah L. Jacobs, January 03, 2014