I have become the administrator to my deceased brothers estate. He did not have much assets other than a vehicle which I had already settled. He did have a Fidelity 401k and I can’t get much help with this part. No attorney or my personal financial advisor can tell me what to do with the 401k. Fidelity tells me I can leave it for 5 years. But why. And in addition my elderly parents are next of kin. I was afraid of letting them take it directly due to any potential Medicade implications. What should I do or what can I do .
Two thoughts:
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Who is the beneficiary on the 401k, your parents?
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Ask around and find a reputable accountant. They will be able to guide you.
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First, determine whether there’s a beneficiary on the 401K. Second, do your parents have both Medicare (for the elderly) and Medicaid (for the indigent)? Sometimes these two are confused by us lay people. Agree that a reputable accountant should be able to guide you.
If your parents are beneficiaries to the 401(k), that might explain why you’re not getting any help with it. Your parents are supposed to get the 401(k) moved into their names and you as executor don’t do anything. Once they take possession, they have to deplete the account in 10 years. That could mean a tenth each year, or all of it in the 10th year, or anything in between. Since monies in the 401(k) will be taxed as ordinary income, a tenth each year would reduce the tax hits (and might not affect Medicare premiums as much that way).
See non-spouse beneficiary section:
https://www.fidelity.com/learning-center/smart-money/inherited-401k-rules
401Ks and IRAs pass to beneficiaries. While it is possible, it would be unusual for the beneficiary to be the deceased’s estate.
Assuming that it passes to a beneficiary, not the estate, as the executor/administrator or the estate, it isn’t something you are responsible for, or to which you have any right or control. Anything of the decedent’s that has a named beneficiary passes ownership/inheritance outside of the estate; directly to the beneficiary.
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I went through something similar when my uncle passed and I was named executor. The 401k beneficiary designation really does override the will, which surprised me at first. My biggest piece of advice is to get a certified copy of the death certificate to every financial institution early, because they will not talk to you without it. Also keep a simple log of every call and letter, it saved me when there was confusion about an account months later.
When I had a Family Trust set up, the lawyer said that it was best to have all accounts with beneficiaries. If money is put into the trust there was some amount of time that it could sit but then it has to be spent. (AI: When a family trust is named as the beneficiary of a traditional IRA or 401(k), the funds generally must be withdrawn and taxed within a strict timeline—usually 10 years under the federal SECURE Act.).
I put my property in the trust and my relatives become the owner of the trust upon my death. The money will have already passed to them. Also my will is a pass-through which means that any items (car, etc) automatically pass to the trust, eliminating the probability of probate.
Although the OP is left with the situation already in progress, this info may be useful to others to do a bit of preparation. In my case, my healthcare directive, will and trust all together cost something like $2000.