An old beneficiary designation can sometimes determine who receives an account even when a newer will or trust names someone else. This commonly happens with retirement accounts, life insurance policies and financial accounts containing payable-on-death or transfer-on-death instructions.
Updating a will does not automatically update the beneficiary forms held by an employer, insurance company, bank or investment provider. When the documents conflict, the account agreement, beneficiary designation, federal law and applicable state law determine who receives the property.
Coordinating every beneficiary form with the broader estate plan is therefore essential.
Can a Beneficiary Designation Override an Estate Plan?
A beneficiary designation generally controls an asset that passes directly to a named recipient outside probate. The owner’s will normally controls only property that becomes part of the probate estate.
For example, imagine someone signs a will leaving everything to two children but still has a 401(k) naming a sibling as the sole beneficiary. When the account owner dies, the plan administrator may be required to distribute the 401(k) to the sibling rather than the children.
The result depends on:
- The type of account or policy
- The most recent valid beneficiary form
- The plan or contract terms
- Federal retirement law
- State probate and insurance law
- Spousal rights
- Divorce orders
- Whether the beneficiary survived the owner
- Whether a contingent beneficiary was named
- Whether the designation was legally challenged
The fact that a will was signed more recently does not necessarily make it controlling.
Which Assets Use Beneficiary Designations?
Several common assets may pass according to beneficiary forms rather than a will.
| Asset | Common transfer method |
|---|---|
| 401(k) or employer retirement plan | Plan beneficiary designation |
| Traditional or Roth IRA | Custodian’s beneficiary form |
| Life insurance | Policy beneficiary designation |
| Annuity | Contract beneficiary designation |
| Payable-on-death bank account | POD instruction |
| Transfer-on-death investment account | TOD registration |
| Transfer-on-death deed | Recorded deed, where state law permits |
| Employee death benefit | Employer plan documents |
| Health or medical savings account | Account beneficiary form |
These assets are often called non-probate assets because they may transfer without being distributed through a will.
A revocable trust does not automatically control them either. The trust generally must be properly named as the beneficiary, own the asset or receive it under another legally effective arrangement.
Why Doesn’t a Will Automatically Control the Account?
A will provides instructions for distributing property included in the probate estate. An account with a valid beneficiary designation usually passes directly under a separate contractual or statutory process.
The financial institution or plan administrator ordinarily looks to its records to identify the beneficiary. It may not be responsible for interpreting a separate will or deciding whether the account owner informally intended someone else to receive the funds.
A will stating “I leave all my property to my children” may therefore have no effect on an IRA that still names the owner’s former partner.
This is why creating an estate plan involves more than signing a will. Account titles, deeds, insurance policies and beneficiary forms must all be coordinated.
Can a Trust Override a Beneficiary Designation?
Not automatically.
A trust may control an account when:
- The trust owns the asset;
- The trust is named as the account beneficiary;
- The account pays to the estate and the will directs the asset into the trust; or
- Another valid arrangement connects the asset with the trust.
Creating or amending a trust does not by itself replace the beneficiary listed on a retirement account or life insurance policy.
Naming a trust as beneficiary also requires careful planning. Retirement-account tax rules, trust terms, beneficiary ages and required distribution rules can affect whether the arrangement works as intended.
The IRS guidance on retirement beneficiaries explains that an account owner must designate beneficiaries according to the procedures established by the plan.
Couples comparing trust structures can review our guide to joint and separate revocable trusts. Whichever structure is selected, its beneficiary provisions should be coordinated with accounts held outside the trust.
What Happens When an Old Form Names an Ex-Spouse?
An ex-spouse remaining on an old beneficiary form is one of the most common sources of disputes.
The outcome can depend on:
- The type of account
- Whether federal law governs the plan
- State revocation-on-divorce statutes
- The divorce decree
- A qualified domestic relations order
- Whether the owner completed a new beneficiary form
- Whether the former spouse waived rights
- When the account owner died
Some states have laws automatically revoking certain beneficiary designations after divorce. However, those statutes do not apply identically to every account.
Employer-sponsored retirement plans governed by the Employee Retirement Income Security Act, known as ERISA, require special attention. Federal law may require a plan administrator to follow the plan documents even when a divorce agreement says the former spouse waived the benefits.
The U.S. Supreme Court addressed this issue in Kennedy v. Plan Administrator for DuPont Savings and Investment Plan. The dispute involved retirement benefits paid to a former spouse who remained the named beneficiary despite language in the divorce decree.
A divorce should trigger an immediate review of retirement plans, IRAs, insurance policies, transfer-on-death accounts and the complete estate plan. Our article explaining what happens after filing for divorce identifies beneficiary and estate-planning updates among the important post-divorce tasks.
Can a Married Person Name Someone Other Than a Spouse?
It depends on the asset and governing law.
Many employer-sponsored retirement plans provide special protections to surviving spouses. A participant who wants to name someone else may need the spouse’s written consent.
The U.S. Department of Labor’s retirement-plan guidance explains that, under many defined-contribution plans, a surviving spouse automatically receives the benefit unless the spouse consents to another beneficiary through the required procedure.
The consent may need to:
- Be in writing
- Identify the alternate beneficiary
- Follow the plan’s required form
- Be witnessed by a notary or plan representative
- Be completed within an applicable period
An owner should not assume that submitting an online beneficiary change is sufficient when spousal consent is legally required.
IRAs, life insurance and other accounts may follow different rules. State marital-property and spousal-rights laws can also affect the result.
What If the Named Beneficiary Died First?
When a beneficiary dies before the account owner, the result depends on the beneficiary form and account terms.
Possible outcomes include:
- A contingent beneficiary receives the asset
- The deceased beneficiary’s descendants receive the share
- The remaining primary beneficiaries divide the account
- The account passes to the owner’s estate
- A surviving spouse becomes entitled under plan rules
- The provider applies a default-beneficiary provision
The words “per stirpes” and “per capita” may affect how a deceased beneficiary’s share is distributed.
A per stirpes designation generally directs a deceased beneficiary’s share to that beneficiary’s descendants. A per capita arrangement may divide the account among surviving beneficiaries at the same generational level. Exact meanings and available options depend on the account documents and state law.
Leaving a deceased person on a beneficiary form can cause delays and uncertainty even when the provider’s default rules ultimately identify another recipient.
What If No Beneficiary Is Named?
An account without a valid beneficiary may pass according to the provider’s default rules.
The default recipient could be:
- A surviving spouse
- Children
- Other relatives
- The owner’s estate
When the estate receives the asset, probate may be required. The account may also receive different tax treatment than it would have if an eligible individual had been named directly.
Default rules vary among providers and account types. An owner should not assume that state intestacy law will produce the expected result.
Can a Minor Be Named as a Beneficiary?
A minor may sometimes be named, but the child usually cannot independently control inherited funds.
Naming a child directly may lead to:
- A court-supervised guardianship or conservatorship
- Appointment of an adult to manage the property
- Additional legal expenses
- Restricted access until the child reaches the age specified by law
- Full distribution at an age the owner considers too young
Alternatives may include naming a properly drafted trust or using an arrangement authorized under a state’s Uniform Transfers to Minors Act.
The best option depends on the asset, the amount involved, the child’s circumstances and state law. Simply writing the name of a minor on a form may not create the controlled inheritance the owner intended.
Should a Trust Be Named for a Beneficiary With a Disability?
Leaving an account directly to someone receiving means-tested public benefits may affect eligibility for certain programs.
A properly designed special needs trust may help manage inherited property without giving the beneficiary unrestricted ownership. However, the trust must be drafted and named correctly, and the beneficiary designation must coordinate with the trust.
Listing the person directly and expecting the will to redirect the account into a special needs trust may not work. The direct designation may control before the will becomes relevant.
Tax consequences are also important when a trust is named as the beneficiary of a retirement account. Estate-planning, tax and public-benefits rules should be reviewed together.
Can an Old Beneficiary Designation Be Challenged?
A beneficiary designation may be challenged in limited circumstances. Disagreement with the deceased person’s choice is not enough by itself.
Potential grounds may include:
- Lack of mental capacity
- Undue influence
- Fraud or forgery
- Failure to follow the provider’s procedures
- A later valid designation
- Violation of spousal rights
- A qualified domestic relations order
- A contractual waiver
- Mistake
- Improper conduct by an agent using a power of attorney
- A state law affecting the designation
The type of asset matters. Federal law may control an ERISA plan, while state law may govern an IRA, insurance policy or payable-on-death account.
Even when the plan administrator must pay the person listed in its records, separate litigation may sometimes arise over whether that recipient can keep the funds. The availability of such a claim varies and should never be assumed.
Can a Power of Attorney Change Beneficiaries?
An agent acting under a power of attorney may or may not have authority to change beneficiary designations.
State law and the document’s wording may require express authorization for actions involving:
- Changing beneficiaries
- Creating survivorship rights
- Making gifts
- Amending trusts
- Changing retirement plans
- Redirecting life insurance
- Transferring property to the agent
A general power to manage finances may not include the authority to alter the principal’s estate plan.
A beneficiary change benefiting the agent may also raise questions about self-dealing, fiduciary duty, capacity and undue influence. Financial institutions may demand specific documentation before accepting the change.
How Should Beneficiary Designations Be Reviewed?
Create an inventory of every asset that may transfer by beneficiary designation.
For each account or policy, record:
- Financial institution or plan administrator
- Account or policy number
- Primary beneficiary
- Contingent beneficiary
- Percentage assigned to each beneficiary
- Date of the latest designation
- Whether the institution confirmed acceptance
- Whether spousal consent was required
- Whether a trust is named
- Whether per stirpes distribution was selected
- Where confirmation records are stored
Do not rely solely on personal spreadsheets or copies of old forms. Request confirmation from the institution maintaining the official beneficiary record.
People preparing for an estate-planning review can use our guide to documents to bring to a lawyer consultation to organize account statements, insurance policies, deeds and existing planning documents.
When Should an Estate Plan Be Reviewed?
Beneficiary forms should be reviewed whenever a significant personal or financial change occurs, including:
- Marriage
- Divorce
- Legal separation
- Birth or adoption of a child
- Death of a beneficiary
- Remarriage
- Retirement
- Change of employer
- Rollover of a retirement account
- Purchase of life insurance
- Creation or amendment of a trust
- A beneficiary developing a disability
- Estrangement or reconciliation
- A major change in wealth
- Moving to another state
- Changes in tax or estate-planning law
Periodic reviews are also useful when no major event occurs. Old accounts are easily forgotten, especially after changing employers or financial institutions.
How Do You Update a Beneficiary Correctly?
Follow the procedure established by the institution or plan administrator.
The process may involve:
- Obtaining the provider’s current beneficiary form;
- Identifying primary and contingent beneficiaries;
- Assigning percentages that total 100%;
- Providing requested identifying information;
- Obtaining spousal consent when required;
- Signing or submitting the designation properly;
- Confirming that the provider accepted it; and
- Saving the confirmation with the estate-planning records.
Do not assume that telling a financial adviser, changing a will or writing instructions in a personal letter updates the institution’s official records.
After a retirement-plan rollover, verify the beneficiary information on the new account. Designations do not always transfer exactly as expected.
Frequently Asked Questions
Does a will override a beneficiary on a bank account?
Usually not when the account has a valid payable-on-death designation. The account normally transfers according to that designation rather than the will.
Does a trust override a life insurance beneficiary?
Not automatically. The trust generally must be properly named as the policy beneficiary or otherwise have a legally recognized right to the proceeds.
Can an ex-spouse inherit a retirement account?
Potentially. The result depends on the account, federal law, plan documents, divorce orders, state law and whether the beneficiary designation was changed.
What happens if the beneficiary form and will name different people?
The beneficiary form commonly controls the non-probate account, while the will controls assets included in the probate estate. Exceptions may apply.
Can I name more than one beneficiary?
Many accounts allow multiple primary and contingent beneficiaries. The assigned percentages should comply with the provider’s requirements and total 100%.
Does naming a beneficiary avoid probate?
A valid beneficiary designation commonly allows the account to transfer outside probate. Disputes, missing beneficiaries or invalid forms may still cause delays or litigation.
Should I name my estate as the beneficiary?
That may be appropriate in some plans, but it can cause the asset to pass through probate and may affect creditor exposure, administration and retirement-account tax treatment. The consequences should be reviewed before making the designation.
How often should beneficiary forms be reviewed?
Review them after every major life event and periodically as part of the complete estate plan. Confirm the designations directly with each institution.
Legal Note: This article provides general information about beneficiary designations and estate planning in the United States and is not legal or tax advice. Federal law, state law, account agreements, spousal rights and tax rules may affect who receives a particular asset. Consult qualified estate-planning and tax professionals before changing beneficiaries or naming a trust, estate or minor.