The loss of a sibling often means the double grief of dealing with the absence of both a relative and a close friend. Knowing your sister left you the proceeds of her estate can lend an extra poignancy to your grief; you may want to carry out your sister’s wishes and collect the proceeds from her 401(k) and life insurance with as little hassle as possible. In most cases, you don’t need to wait for probate to collect these assets, though you need the proper paperwork to make your claim.
Both life insurance and retirement accounts such as a 401(k) pass to the person designated on the beneficiary form when the insurance or retirement account is established. If your sister wanted you to have these assets, she should have listed you by name as the beneficiary on her policies. To collect the money, you need only submit evidence of your sister’s death and your own identity. If you were not named as the beneficiary of the 401(k) and the life insurance, the funds will pass to the person named on the beneficiary form, regardless of what your sister’s will might read. If the beneficiary forms designate that the funds are to pass to your sister’s estate, you have to wait until after probate to collect the money, which will be divided according to the terms of your sister’s will after any outstanding debts owed by the estate are paid.
To collect life insurance proceeds and the money in a 401(k) if you are the named beneficiary of your sister’s policies, you need to present a copy of her death certificate to the insurance company and the financial institution that holds the 401(k). You may obtain copies of the death certificate from the county in which your sister’s death was registered. You need certified copies of the death certificate, which are legal documents, and you need to pay a fee for each copy. You need one copy for the life insurance and one for the 401(k). You also need to supply copies of your identification, such as a driver’s license, and complete a form requesting the funds be transferred to you. You may also need to provide your Social Security number; the money you receive is reported to the IRS.
If you have copies of your sister’s insurance policy and information about her 401(k), contact the company listed on the forms. If you don’t have this paperwork, contact the Human Resources department at her employer. Someone there should be able to put you in touch with the companies handling these claims. Submit your documents through certified mail, and follow up by phone if you don’t hear anything in a couple of weeks. The insurance company should send you a check for the amount of the policy. Life insurance proceeds don’t count as income, and you shouldn’t owe taxes on the amount you receive. You have several choices as to how to handle the 401(k) funds.
Because a 401(k) is funded with pretax dollars, you will owe taxes on the proceeds of the account. This could result in a hefty tax bill if your sister had worked for a while and accumulated a large account. The company may allow you to keep the money in your sister’s account for a number of years – up to five years in some cases. You may choose this option, but you’ll still owe tax at the end of the five years on the lump sum you are paid. To avoid this tax burden, you can opt to roll over the funds from your sister’s 401(k) into your own Individual Retirement Account. Inform the financial institution that handles your sister’s account that you want to roll over the money, and give them all the information about your account. They can handle the transfer directly and you won’t owe any taxes until you begin to withdraw the money from your IRA at some later date. You must allow the financial institutions to do the transfer directly – if you have the company send you a check and you deposit the check into your IRA, you will owe taxes on the amount you receive in the check.
Cynthia Myers is the author of numerous novels and her nonfiction work has appeared in publications ranging from "Historic Traveler" to "Texas Highways" to "Medical Practice Management." She has a degree in economics from Sam Houston State University.