Qualified retirement assets, like traditional IRAs and 401(k)s and ESOPs and pension accounts, usually have a death beneficiary designated. This allows them to pass outside of probate. If the beneficiary is a surviving spouse, the spouse can "roll over" the assets into her own IRA and defer taking distributions until her "required beginning date." Other individuals, or trusts which are designed to qualify as "designated beneficiaries," have to start taking distributions the following year, but they get to stretch the distributions out over their life expectancy. This deferral is important because distributions out of an IRA or other retirement account are taxed as ordinary income for the year you receive them, and assets that aren't distributed yet continue to grow tax-free.
So what happens if the account owner didn't designate a death beneficiary? This happened in an estate I'm just finishing up. The decedent was a relatively young gentleman who never got around to doing any estate planning--no will, no death beneficiary designations--"no nothin'," as they sometimes say. Because there was no death beneficiary on his pension account, it became payable to his estate by default.
He had two heirs who each got a 50% share of the estate. Due to the peculiarities of how qualified plan distributions work, the pension trustee could not make distribution straight to the heirs. The estate had to first open an IRA account. The pension plan made a "direct transfer" to the estate IRA. The heirs each opened an individual IRA, and the estate immediately transferred the assets in equal shares to their accounts.
Because the pension plan did not have a "designated beneficiary," the heirs are required to take distribution of the IRA within five years. This isn't as good as taking it out over one's life expectancy, but at least they can get some deferral.
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