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Beneficiary Designations: The Most Overlooked (and Most Dangerous) Part of Your Plan

ByLDS Legal Journal Team

Everyone obsesses over the will or trust. Fewer people review the boring one-page forms that actually move the money. Beneficiary designations—on retirement plans, IRAs, life insurance, brokerage accounts (TOD), and bank accounts (POD)—are contracts that usually control who gets paid, regardless of your will. When they’re wrong or outdated, they can wreck an otherwise perfect estate plan. FINRA says it plainly: beneficiary/TOD instructions typically override your will. Review them with the same rigor you give to your will or trust.

Title: Beneficiary Designations: The Most Overlooked (and Most Dangerous) Part of Your Plan
Author: LDS Legal Journal Team
Est Read: 9 minutes

Why These Forms “Beat” Your Will

Most modern assets transfer by contract (policy or account agreement) straight to the named beneficiary—no probate. That’s by design under non-probate transfer laws like the Uniform TOD Securities Registration Act, and through POD/TOD designations widely recognized in consumer and banking law. Legal Information Institute+2Legal Information Institute+2

Translation: If your will leaves everything to your children but your old 401(k) names your ex, the ex wins unless ERISA spousal rules intervene. These forms are powerful—use them carefully. FINRA

Special Rules for Work Retirement Plans (401(k), 403(b))

ERISA plans have a default spousal beneficiary rule: if you’re married, your spouse generally must be the primary beneficiary unless your spouse consents to a different choice in the manner required by the plan. The Department of Labor and IRS both emphasize the spousal protections and related notice/waiver mechanics (e.g., QJSA/QPSA). If you intend to name a non-spouse, get the plan’s form and follow the consent process exactly. Ed Slott and Company, LLC+1

The SECURE Act 10-Year Rule: Why “Who” You Name Now Matters Later

For most non-spouse beneficiaries of IRAs and defined contribution plans, the SECURE Act replaced lifetime “stretch” payouts with a 10-year window to empty the account. IRS guidance clarifies the 10-year rule and has provided transitional relief while final administration rules phase in; you still need to assume payout within 10 years unless an eligible designated beneficiary (EDB) applies (surviving spouse, disabled, chronically ill, minor child of decedent until majority, or someone ≤10 years younger than decedent). Coordinate designations with your tax advisor and trust counsel. IRS+3IRS+3IRS+3

Per Stirpes vs. Per Capita: Words That Change Outcomes

If a named beneficiary dies before you, how should their share flow?

  • Per stirpes: their share goes down their family line to their descendants.
  • Per capita: their share is reallocated among the surviving named beneficiaries.

Custodian and insurer forms vary; some offer checkboxes, others don’t—know what you’re selecting and how your firm defines each term. Cornell’s Wex entries are a clear starting point; NAIC commentary also notes variation in practice terminology. Align your intent with the form’s definitions to avoid surprises. Legal Information Institute+2Legal Information Institute+2

Primary vs. Contingent (Backup) Beneficiaries

Always name contingent beneficiaries (backups) in case your primary cannot take. For life insurance and many accounts, regulators and consumer guidance encourage listing both classes; without a valid contingent, proceeds may detour to your estate and into probate. NAIC+1

Minors as Beneficiaries: Court Detours & Better Alternatives

Financial institutions often won’t pay directly to a minor; they typically require a court-appointed guardian/conservator or another legal structure, delaying access and increasing cost. Consider designating a trust (under your will or revocable living trust) or, for modest sums, a UTMA/UGMA custodian as the beneficiary instead—coordinated with your overall plan and state law on age of majority. Finaid+3Premack Law Office+3Gray Gray & Gray, LLP+3

Common Disaster / Simultaneous Death Language

If you and a beneficiary die in the same accident (or nearly so), payment may depend on survivorship language (e.g., a 30-day survival requirement) in the policy or account. Add clear survivorship and disaster language in your estate documents—and know what your account forms already say. Law Office of Andrew M. Lamkin P.C.+1

How Designations Coordinate with a Revocable Living Trust

A revocable living trust (RLT) manages incapacity and avoids probate for assets titled to it. For non-retirement accounts, many clients use TOD to the RLT so the trustee can apply the same distribution standards across assets. For retirement accounts, weigh tax and SECURE Act issues before naming a trust; if you do, ensure the trust qualifies and matches your EDB/non-EDB strategy. Legal Information Institute+1

Red-Flag Mistakes

  1. Out-of-date forms (ex-spouses still on file). Beneficiary forms override wills—update after marriage, divorce, births, deaths, and moves. FINRA
  2. No contingent beneficiary. If the primary can’t take, assets may default to the estate and into probate. NAIC
  3. Ignoring ERISA spousal consent on a 401(k). A non-spouse primary generally requires formal, witnessed spousal consent. Ed Slott and Company, LLC
  4. Naming a minor directly. Expect court involvement; use a trust or UTMA/UGMA custodian instead, coordinated with your lawyer. Premack Law Office+1
  5. Mismatched per stirpes/per capita preferences. Ensure the form’s definitions match your intent (firms differ). NAIC
  6. Trust named without design. If you name a trust as beneficiary, confirm it is appropriately drafted for retirement assets and SECURE/EDB rules. IRS
  7. No survivorship provision. Clarify common-disaster timing in your documents so insurance and accounts pay as intended. Law Office of Andrew M. Lamkin P.C.

Practical Playbook

  • Inventory every account/policy with a beneficiary option: 401(k), 403(b), IRA/Roth IRA, life insurance, HSAs, annuities, brokerage (TOD), and bank (POD). Mark “primary” and “contingent” for each. Legal Information Institute
  • Confirm ERISA rules on employer plans; get spousal consent if you’re naming a non-spouse. Use the plan’s exact form. Ed Slott and Company, LLC
  • Choose per stirpes/per capita intentionally and consistently across platforms (and understand your custodian’s definitions). Legal Information Institute
  • Coordinate with your RLT/will: non-retirement accounts often TOD to the trust; retirement accounts require special analysis under the 10-year rule and EDB categories. IRS
  • Avoid naming minors directly; use a trust or UTMA/UGMA when appropriate, with your lawyer’s guidance. Investopedia
  • Calendar reviews: re-check designations annually and after major life events. FINRA explicitly urges routine updates. FINRA

Category: Estate Planning; Wills; Trusts; Probate; Beneficiaries; Powers of Attorney; Elder Law; Tax Planning; Digital Assets; Guardianship

FAQs

Do beneficiary designations really override my will?
Yes—for the asset covered by the designation (e.g., a 401(k), IRA, life policy, TOD brokerage account). The contract governs, not your will. FINRA

If I’m married, can I name my child as primary on my 401(k)?
Not without spousal consent that satisfies ERISA/plan requirements. Otherwise the spouse has priority. Ed Slott and Company, LLC

My adult child passed away before me. Does their share go to my grandchildren?
Only if your form or governing document says so (e.g., per stirpes). If it’s per capita, the share typically shifts to the other surviving named beneficiaries. Check the form’s definitions and options. Legal Information Institute+1

How do the SECURE Act rules affect my IRA beneficiaries?
Most non-spouse beneficiaries must empty the account within 10 years; certain “eligible” beneficiaries get longer options. IRS guidance continues to refine administration and has provided transition relief. Plan with your tax advisor. IRS+2IRS+2

Can I list my revocable trust as beneficiary of my brokerage account?
Yes—many investors register non-retirement accounts TOD to their trust to centralize distributions under one set of instructions. For retirement accounts, get specialized advice before naming a trust. Legal Information Institute

Sources & Authority

Legal note: Financial-institution forms differ. Always obtain the exact beneficiary form and definition sheet from each custodian/insurer, then align those with your will/trust. State law, plan terms, and federal rules (ERISA/SECURE Act) can alter outcomes—coordinate with licensed counsel in your state.

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