What happens to your investments when you die?
Last updated August 2026
Short answer
The single highest-value hour in estate planning is spent checking beneficiary forms, and almost nobody spends it.
Designations override the will
Retirement accounts pass to the named beneficiary, and so do taxable accounts with a transfer-on-death registration.
A will governs what is left over, which for many households is a small part of the total.
Old plans from previous employers are the usual failure point, because the form was completed once and never revisited through a marriage or a divorce.
The step-up in taxable accounts
Assets generally receive a new cost basis equal to the value at the date of death.
Shares bought for $10,000 and worth $100,000 pass with a basis of $100,000, so the $90,000 of gain is never taxed as income.
That makes highly appreciated taxable holdings among the best assets to leave, and among the worst to sell late in life without a reason.
Retirement accounts work differently
Traditional IRA and 401(k) balances carry their embedded tax to the heir, who pays ordinary income tax as they withdraw.
There is no step-up, so the account is worth less to a beneficiary than the same balance in a taxable account.
A Roth IRA is the exception, passing tax-free where the five-year requirement was satisfied, which makes it the most valuable account to leave behind.
Try it in Walnut
Walnut connects to your brokerage and reads what you hold across accounts, which is also the list an executor most needs and least often has.
The ten-year rule
Most non-spouse beneficiaries must empty an inherited retirement account within ten years of the owner's death.
Where the owner had already begun required distributions, annual withdrawals are also required during those ten years.
Certain eligible beneficiaries, including minor children of the owner, disabled or chronically ill individuals and those close in age to the owner, are treated more favourably.
Spouses have more options
A surviving spouse can generally treat an inherited IRA as their own, naming new beneficiaries and following the ordinary rules.
That restores the ability to delay distributions until their own required beginning date.
The alternative of remaining a beneficiary can suit a younger spouse who needs access before 59.5, so the choice is worth making deliberately.
The checklist
Review every beneficiary designation, including old employer plans, and name contingent beneficiaries as well as primary ones.
Add transfer-on-death registration to taxable accounts, which is free and keeps them out of probate.
Leave a list of institutions and account types somewhere your executor can find it, because unclaimed accounts are a large and entirely avoidable category.
What heirs should do first
Do not liquidate anything before establishing the date-of-death value, because that value sets the basis and determines the tax on any later sale.
Inherited retirement accounts should be retitled as inherited accounts rather than rolled into the beneficiary's own, which for a non-spouse is not permitted and triggers full taxation.
Take the first year's required distribution if one is due, since the obligation transfers with the account and missing it carries a penalty the heir pays.
Sources
Inherited account rules, including the ten-year requirement and spousal options, are in IRS Publication 590-B and the RMD FAQs. Basis of inherited property is covered in Publication 551. Walnut is informational and is not an investment adviser. This guide is educational and not personalized tax or estate advice.
FAQ
Does my will decide who gets my investment accounts?
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Not for accounts with a beneficiary designation. Retirement accounts and any account with a transfer-on-death registration pass by that designation, and it overrides the will. An outdated form is the single most common estate planning failure.
What is the step-up in basis?
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Assets in a taxable account generally receive a new cost basis equal to their value at the date of death, so unrealised gains built up over a lifetime can escape income tax entirely when heirs sell.
Do retirement accounts get a step-up?
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No. Traditional IRA and 401(k) balances are taxed as ordinary income to the heir as they are withdrawn. That difference is why leaving a taxable account and a traditional IRA to different heirs has very different consequences for each.
What is the ten-year rule?
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Most non-spouse beneficiaries must empty an inherited retirement account within ten years of the owner's death. Where the owner had already begun required distributions, annual withdrawals are also required during that period.
Is a spouse treated differently?
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Yes, and much more favourably. A surviving spouse can generally treat an inherited IRA as their own, which restores the ordinary rules including the ability to name new beneficiaries and delay distributions.
What about a Roth IRA?
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Withdrawals by heirs are generally tax-free provided the account satisfied its five-year requirement. The ten-year emptying rule still applies to most non-spouse beneficiaries, so the account cannot be stretched indefinitely.
What is transfer on death registration?
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A designation on a taxable brokerage account naming who receives it, which passes the account outside probate without giving anyone access during your lifetime. It is free to add and it works the way people assume a will does.
What should I actually do?
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Check every beneficiary designation, name contingent beneficiaries as well as primary ones, add transfer-on-death registration to taxable accounts, and keep a list of accounts somewhere your executor can find it.
What should an heir do first?
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Establish the date-of-death value before selling anything, because that sets the basis. Retitle an inherited retirement account as an inherited account rather than rolling it into your own, which a non-spouse cannot do, and check whether a distribution is due for that year.