Beneficiary designations
The part of estate planning most people miss, and the one that can override your will.
Beneficiary designations usually override your will.
Your IRA, 401(k), life insurance policy, and payable-on-death bank accounts all pass directly to whoever is named on the beneficiary form, in most cases regardless of what your will says. A will only controls assets that go through probate. While a named beneficiary is alive to receive them, these accounts stay out of probate.
Accounts to review
Retirement accounts
401(k) / 403(b) / 457 plans
Employer-sponsored retirement plans. Primary + contingent beneficiary.
Traditional IRA
Check both primary and contingent beneficiaries. Ex-spouses are a common mistake.
Roth IRA
Same rules as Traditional IRA. Easily overlooked when opened years ago.
SEP-IRA / SIMPLE IRA
Often opened through a broker and forgotten. Worth verifying.
Pension with survivor benefit
Survivor benefit election made at retirement. Review if circumstances changed.
Insurance
Life insurance policies
Term, whole, and universal life. Both primary and contingent beneficiaries.
Annuities
Death benefit goes directly to named beneficiary, bypassing probate.
Employer group life insurance
Often 1–2× salary, automatically enrolled. Many people forget to update after life events.
Bank & brokerage accounts
Bank accounts with POD designation
Payable-on-death (POD) accounts transfer directly to named beneficiary.
Brokerage / investment accounts (TOD)
Transfer-on-death (TOD) registration passes the account to the named beneficiary outside probate.
Health Savings Account (HSA)
If beneficiary is a spouse, they inherit the HSA tax-free. Non-spouse beneficiaries owe income tax.
Other
Employer stock / equity compensation
RSUs, stock options, and ESPP accounts may have beneficiary designations.
Deferred compensation plans
Executive compensation arrangements often have separate beneficiary forms.
Common mistakes
Naming a minor child directly
A minor cannot legally receive assets directly. If a minor is named as beneficiary, a court will appoint a guardian of the property to manage the funds, an expensive, public process.
Forgetting to update after divorce
Federal law governs most retirement accounts. A divorce decree does NOT automatically remove an ex-spouse as beneficiary on a 401(k). The designation on file with the plan administrator stays in place until the form itself is changed. Some states have "revocation on divorce" laws for insurance, and they vary by state.
No contingent beneficiary named
If your primary beneficiary dies before you and there is no contingent (backup) beneficiary, the account's own default rule decides who takes the primary's share. When that rule pays your estate, the asset goes through probate.
Naming your estate as beneficiary
This forces retirement accounts and life insurance through probate and can trigger immediate income taxes on inherited IRAs.
Beneficiary designation conflicts with the will
Your will says "everything to my children equally," but your $800,000 IRA still names only your oldest child from a previous marriage. In most cases the beneficiary designation wins, whatever the will says. The exceptions come from specific laws, such as revocation on divorce or a spouse's property rights, and they vary by state.
When to review your designations
- •Marriage or divorce
- •Birth or adoption of a child
- •Death of a named beneficiary
- •Significant change in your financial situation
- •Moving to a different state (some state laws differ)
- •Opening a new financial account
- •Every 3–5 years as a general checkup
Your will controls the rest.
Whatever you decide today, your family won’t have to guess. Start free, or save it to your account for $29 a year.
This information is for educational purposes only and does not constitute legal or financial advice. Beneficiary designation rules vary by account type and state. Consult an estate planning attorney or financial advisor for guidance specific to your situation.