In many cases, yes. For the accounts that hold the bulk of most people’s wealth — retirement accounts, life insurance policies, and annuities — assets pass entirely outside of your will, governed instead by a beneficiary designation form you may have filled out years or even decades ago.
That form, often a single page, can override whatever instructions you’ve left in your will. If it’s outdated, the consequences can be significant: the wrong person inherits, your family pays unnecessary taxes, or the account ends up in probate. And once you’re gone, it can’t be fixed.
How Beneficiary Designations Work — and Why They Take Priority
When you name a beneficiary on a retirement account, life insurance policy, or annuity, you’re creating a contract between you and that financial institution. At death, the asset passes directly to the named person with no probate, no waiting, and critically, no review by a probate court to check whether it aligns with your will.
This is actually one of the features that makes beneficiary designations useful. Assets with beneficiaries pass quickly and privately. But it also means the responsibility falls entirely on you to keep those designations accurate.
It’s worth understanding what’s being avoided. Probate is the court-supervised process of validating a will and distributing assets, and it comes with real costs. Depending on the state and the complexity of the estate, probate can take anywhere from several months to over a year. Court fees, attorney fees, and executor fees can consume a meaningful portion of the estate’s value. The proceedings are also a matter of public record, meaning anyone can see what assets were owned and who received them. Beneficiary designations sidestep this entirely, which is why getting them right matters.
Here’s a straightforward example of how this can go wrong: Imagine someone remarries after a divorce but never updates the beneficiary on their 401(k). Their ex-spouse is still listed. When they pass away, that ex-spouse receives the account. It doesn’t matter what the will says, who they remarried, or what anyone intended. Courts have consistently upheld this outcome.
This happens more often than you’d think. It’s one of the most common estate planning mistakes we see.
The Accounts Most Likely to Be Affected
Beneficiary designations govern more of your financial life than most people realize. The accounts and policies where your named beneficiary controls distribution include:
- Employer retirement plans — 401(k), 403(b), 457 plans
- Individual retirement accounts — Traditional IRA, Roth IRA, SEP-IRA, SIMPLE IRA
- Life insurance policies — term, whole life, universal life
- Annuities
- Health Savings Accounts (HSAs)
- Some bank and brokerage accounts — through what’s called a Transfer on Death (TOD) or Payable on Death (POD) designation
For many households, these accounts represent the majority of their net worth. If you’ve spent time and money drafting a will or trust, but haven’t reviewed your beneficiary designations, you may have left a significant gap in your plan.
Common Beneficiary Designation Mistakes
Naming a minor child directly
Life insurance proceeds or retirement accounts cannot be paid directly to a minor child. If you name a young child as beneficiary without a trust or custodial arrangement in place, a court may appoint a guardian of the property to manage those funds. This process is costly, time-consuming, and subject to court oversight until the child turns 18. At 18, they receive everything outright with no restrictions.
For most parents, that’s not the outcome they intended. A properly structured trust or UTMA designation gives you far more control.
Naming your estate as beneficiary
This is surprisingly common, and it’s almost always a mistake. When you name your estate as beneficiary on a retirement account, the account loses its ability to pass outside of probate, which is one of its primary advantages. The distribution also becomes a taxable event for the estate, which can create a significant income tax burden that wouldn’t have existed if you had named an individual beneficiary directly.
Forgetting to name a contingent beneficiary
Your primary beneficiary is who gets the account first. Your contingent beneficiary is the backup if your primary predeceases you or disclaims the inheritance. If you have no contingent beneficiary named, the asset may default to your estate — triggering the same problems described above.
Outdated designations after major life events
Divorce, remarriage, the birth of children or grandchildren, the death of a named beneficiary — any of these events should trigger a beneficiary review. Unfortunately, that review often doesn’t happen. People update their wills but forget the old 401(k) sitting at a former employer. Consolidating old accounts can simplify this.
Per stirpes vs. per capita — a distinction worth understanding
When you name multiple beneficiaries or want to ensure assets pass to a beneficiary’s children if they predecease you, the designation language matters. “Per stirpes” means a deceased beneficiary’s share passes to their descendants. “Per capita” means the share is divided among surviving beneficiaries only. Most people have a preference, but they’ve never been asked. If your designations don’t reflect your wishes here, the default rules may produce a result you didn’t intend.
After the SECURE Act: What Changed for Inherited IRAs
If you’re planning to leave IRA assets to adult children or other non-spouse beneficiaries, the rules changed significantly with the SECURE Act in 2019. Who you name, and how the account is structured, can have real tax consequences for your heirs.
The rules here are detailed enough that we covered them separately. If you want to understand how inherited IRAs work under current law, read our full guide to inherited IRAs.
How Often Should You Review Your Beneficiary Designations?
We recommend reviewing beneficiary designations at least every two to three years as a baseline, and immediately following any major life event:
- Marriage or divorce
- Birth or adoption of a child or grandchild
- Death of a named beneficiary
- Significant changes in your financial picture or estate plan
- Opening a new account or policy
- Participating in a new company sponsored retirement plan
A Checklist to Get Started
If you’re not sure where your designations stand right now, here’s a simple starting point:
- Make a list of every account and policy where you may have named a beneficiary (retirement accounts, IRAs, life insurance, annuities, HSAs, and any TOD/POD accounts).
- Pull the current designations from each institution. Don’t rely on memory.
- Compare what you find to your current wishes and your overall estate plan. Look for outdated names, missing contingent beneficiaries, and inconsistent per stirpes vs. per capita language.
- Talk to your advisor or estate attorney about anything that doesn’t look right, especially for IRA assets where tax treatment can vary significantly by who you name.
- Update anything that needs to change. Most custodians let you do this online in a few minutes.
The Bottom Line
Beneficiary designations are easy to overlook, but they’re a foundational part of any estate plan. They control where some of your largest assets go, they bypass your will, and once you’re gone, mistakes can’t be corrected.
The good news is that reviewing them is one of the simpler things you can do for your estate plan. If you’d like a second set of eyes on your estate plan, or want to make sure your designations align with the rest of your goals, reach out to our team and we’ll walk through them with you.
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