OT: Question about 401k money after death

[JoeParulz]

If someone passes away with a $10,000 liability(loan) and $80,000 in a 401k plan, does $10k of the 401k money need to be distributed out and paid to the creditor to satisfy the outstanding liability? Assume those are the only assets and liabilities.

 

[Art]

If someone passes away with a $10,000 liability(loan) and $80,000 in a 401k plan, does $10k of the 401k money need to be distributed out and paid to the creditor to satisfy the outstanding liability? Assume those are the only assets and liabilities.

Yup.

 

[MtNittany]

You bet your sweet bippy. Well, once they find you anyway.

 

[psualt]

If someone passes away with a $10,000 liability(loan) and $80,000 in a 401k plan, does $10k of the 401k money need to be distributed out and paid to the creditor to satisfy the outstanding liability? Assume those are the only assets and liabilities.

Not so sure that this money would be offset. When a designated beneficiary is outside of the estate the creditors would be looking to the estate to satisfy the loan and if there are no assets then where do they get paid?

If there is no named beneficiary it goes to the estate and could be used to pay the debts.

If the loan is in the 401k this is a different story as the amounts would be netted and the decedent would receive a 1099r for at least the loan amount.

 

[Art]

Not so sure that this money would be offset. When a designated beneficiary is outside of the estate the creditors would be looking to the estate to satisfy the loan and if there are no assets then where do they get paid?

If the loan is in the 401k this is a different story.

Assuming that there is a designated beneficiary. Not all that long ago companies weren't as religious as they are now on requiring a designation, and some aren't today.

 

[psualt]

Assuming that there is a designated beneficiary. Not all that long ago companies weren't as religious as they are now on requiring a designation, and some aren't today.

True. I added to my original post as well. The OP was silent as to whether or not this was the case.

 

[lubrano]

If someone passes away with a $10,000 liability(loan) and $80,000 in a 401k plan, does $10k of the 401k money need to be distributed out and paid to the creditor to satisfy the outstanding liability? Assume those are the only assets and liabilities.

So long as the Decedent named a Beneficiary for the 401(k) account , there would be no offset as you describe. However, if the Beneficiary is the Estate of the Decedent then the proceeds would be subject to the reach of creditors.

Under Federal law, a 401(k) participant must name his/her spouse as Beneficiary unless the Spouse agrees in writing to name someone else AND that writing is notarized.

In this case, if the Decedent was not married
at the date of death then he/she is free to name anyone as Beneficiary.

The asset would pass by operation of law directly to the Beneficiary and thus avoid probate.

 

[Art]

So long as the Decedent named a Beneficiary for the 401(k) account , there would be no offset as you describe. However, if the Beneficiary is the Estate of the Decedent then the proceeds would be subject to the reach of creditors.

Under Federal law, a 401(k) participant must name his/her spouse as Beneficiary unless the Spouse agrees in writing to name someone else AND that writing is notarized.

In this case, if the Decedent was not married
at the date of death then he/she is free to name anyone as Beneficiary.

The asset would pass by operation of law directly to the Beneficiary and thus avoid probate.

Hmmm, decedent naming a beneficiary at date of decedent's death. Conjures up all sorts of possibilities at this time of year.

 

[JoeParulz]

So long as the Decedent named a Beneficiary for the 401(k) account , there would be no offset as you describe. However, if the Beneficiary is the Estate of the Decedent then the proceeds would be subject to the reach of creditors.

Under Federal law, a 401(k) participant must name his/her spouse as Beneficiary unless the Spouse agrees in writing to name someone else AND that writing is notarized.

In this case, if the Decedent was not married
at the date of death then he/she is free to name anyone as Beneficiary.

The asset would pass by operation of law directly to the Beneficiary and thus avoid probate.

Thanks, in this case, no beneficiary was named. So it’s my sisters ex husband who passed away. He did not have a beneficiary on the 401k so I’m assuming this money is going to go to his minor children(after the loan is paid off).