When an IRA account holder dies, a spouse, child or other relation can inherit the IRA. IRA account holders can designate beneficiaries to allow assets to pass to specific individuals directly and bypass probate. If you don't name a beneficiary, your IRA goes through probate and passes according to your will or your state's intestate succession laws.
The forms required to set up an IRA typically include a section that lets the account holder name a primary beneficiary for the account. If the account owner dies before withdrawing all of the funds, the remaining assets pass on to the primary beneficiary. Because this bypasses probate, it doesn't matter whether you've left a will, or what the will says. When it passes directly to a beneficiary and does not become part of your estate, the IRA assets cannot be taken by creditors.
When you name a primary beneficiary, you may also have the option of naming secondary or contingent beneficiaries. A contingent beneficiary inherits an asset if the primary beneficiary is deceased. For example, an IRA owner might designate his spouse as his primary beneficiary and his child as a contingent beneficiary. If the couple dies in a car crash, the child inherits the IRA. Contingent beneficiaries receive nothing, however, if the primary beneficiary is alive.
If an IRA account holder does not name any beneficiaries, the account becomes a part of the owner's estate. Your estate typically passes on to your beneficiaries according to the terms of your will. An executor named in the will or appointed by a court is responsible for paying your final bills and ensuring that assets in the estate pass on to beneficiaries according to your instructions.
If your IRA doesn't name any beneficiaries and you die without a will, your IRA will pass to your closest relatives according to state laws, called "laws of intestate succession." States have different rules for determining who receives assets when someone dies without a will, but surviving spouses and children are typically first in line to inherit assets. Non-blood relations like friends and unmarried partners typically do not receive anything in the intestate succession process, although some states allow assets to pass on to registered domestic partners.