30 Jul Do Beneficiary Designations Override a Will? What You Need to Know
Do Beneficiary Designations Override a Will? What You Need to Know
Many people assume their will determines who inherits all of their assets after they pass away.
In reality, that’s often not the case.
For many of the accounts people accumulate throughout their livesβincluding retirement accounts, life insurance policies, annuities, and payable-on-death bank accountsβthe beneficiary designation on file usually determines who receives the asset, regardless of what your will says.
A recent Investopedia article highlighted this commonly misunderstood estate planning topic and explained why reviewing beneficiary designations is just as important as updating your will.
At Nova Wealth Management, we’ve found that beneficiary reviews are one of the most overlooked parts of financial and estate planning. Fortunately, they’re also one of the easiest updates you can make to help ensure your assets are distributed according to your wishes.
Important: Estate planning laws can vary depending on your circumstances, state law, and the type of account involved. This article provides general educational information and should not be considered legal advice.
Do Beneficiary Designations Override a Will?
In many situations, yes.
Assets with a valid beneficiary designation generally pass directly to the named beneficiary rather than through your will.
This means that even if your will says one thing, the beneficiary designation on file with the financial institution often controls who receives the account.
This process allows many financial assets to transfer directly to beneficiaries without passing through probate, potentially making distributions faster and more efficient.
Which Assets Usually Pass by Beneficiary Designation?
Many financial accounts allow owners to name one or more beneficiaries who will automatically receive the assets after the owner’s death.
These commonly include:
| Asset | Usually Controlled By |
|---|---|
| Traditional IRA | Beneficiary designation |
| Roth IRA | Beneficiary designation |
| 401(k) | Beneficiary designation |
| 403(b) and 457 plans | Beneficiary designation |
| Life insurance policies | Beneficiary designation |
| Annuities | Beneficiary designation |
| Transfer-on-Death (TOD) accounts | Beneficiary designation |
| Payable-on-Death (POD) bank accounts | Beneficiary designation |
Because these assets generally transfer directly through beneficiary forms, they typically are not governed by instructions contained in a will.
What Does a Will Control?
Your will still plays an important role in your estate plan.
Generally, a will governs assets that do not already have a beneficiary designation or another legal method of transfer.
Examples may include:
- Personal property such as jewelry, furniture, and collectibles
- Vehicles
- Real estate owned individually (depending on how title is held)
- Household belongings
- Assets without beneficiary designations
A properly prepared will can also name guardians for minor children and provide instructions regarding the administration of your estate.
Why Beneficiary Reviews Matter
Beneficiary designations are often completed when an account is first openedβand then forgotten for years.
Life changes, however, and outdated beneficiary forms may no longer reflect your current wishes.
Major life events that should prompt a beneficiary review include:
- Marriage
- Divorce
- Remarriage
- The birth or adoption of a child
- The death of a beneficiary
- Retirement
- Significant changes in your estate plan
Even if your will has been updated recently, failing to review beneficiary forms may produce results you never intended.
Common Beneficiary Mistakes
Many estate planning problems begin with outdated or incomplete beneficiary forms.
Some of the most common mistakes include:
Forgetting to Update an Ex-Spouse
Following a divorce, it’s easy to assume every legal document has been updated.
However, retirement accounts and insurance policies often require separate beneficiary updates.
Failing to make those changes could result in assets passing to someone you no longer intended to receive them.
Not Naming Contingent Beneficiaries
A primary beneficiary may pass away before you do.
Without a contingent beneficiary listed, the account could become part of your estate, potentially creating additional administrative delays.
Naming Minor Children Directly
Leaving retirement accounts or life insurance proceeds directly to minor children may create additional legal complexities.
Depending on your circumstances, trusts or other planning strategies may be more appropriate.
Ignoring Percentage Allocations
When naming multiple beneficiaries, it’s important to review allocation percentages carefully.
Small mistakes may unintentionally change how assets are distributed.
How Often Should You Review Beneficiaries?
Even without major life changes, reviewing beneficiary designations every three to five years can help ensure your estate plan continues to reflect your wishes.
A beneficiary review is often a simple process that may provide significant peace of mind.
Beneficiary Designations and Your Overall Financial Plan
Beneficiary designations should not be viewed as separate from your overall financial plan.
Instead, they should work together with your will, trusts, retirement accounts, tax planning strategies, and legacy goals.
When these pieces are coordinated, your estate plan is more likely to reflect your intentions while reducing unnecessary confusion for your loved ones.
What Happens If Your Beneficiary Dies Before You?
Naming a primary beneficiary is only part of the process. It’s equally important to name one or more contingent beneficiariesβindividuals or organizations who would inherit the asset if your primary beneficiary passes away before you.
If no contingent beneficiary has been named, the account may become part of your estate. Depending on the account type and your estate plan, this could lead to additional administrative steps and, in some cases, probate.
Reviewing both your primary and contingent beneficiaries helps ensure your wishes are carried out, even if circumstances change.
Will vs. Beneficiary Designation: Which One Controls Your Assets?
| Asset Type | Typically Controlled By |
|---|---|
| IRA | Beneficiary designation |
| Roth IRA | Beneficiary designation |
| 401(k) | Beneficiary designation |
| Life insurance policy | Beneficiary designation |
| Annuity | Beneficiary designation |
| Transfer-on-Death (TOD) account | Beneficiary designation |
| Payable-on-Death (POD) account | Beneficiary designation |
| Personal property | Will |
| Vehicles | Will (unless otherwise titled) |
| Real estate owned individually | Will (depending on ownership and state law) |
Every estate is unique, and exceptions can apply depending on account registration, ownership structure, state law, and federal regulations. Reviewing your estate plan with qualified legal and financial professionals can help ensure everything works together as intended.
A Simple Beneficiary Review Checklist
Consider reviewing your beneficiary designations if you answer “yes” to any of these questions:
- Have you gotten married or divorced since opening your accounts?
- Have you remarried?
- Have you had or adopted a child?
- Has one of your named beneficiaries passed away?
- Have your financial goals changed?
- Have you created or updated a trust?
- Have you changed jobs or rolled over retirement accounts?
- Has it been more than three to five years since you reviewed your beneficiary forms?
If any of these situations apply, it may be a good time to review your beneficiary designations alongside your broader financial and estate plan.
Frequently Asked Questions
Does a beneficiary designation override a will?
In many cases, yes. Retirement accounts, life insurance policies, and other accounts with valid beneficiary designations generally pass directly to the named beneficiary instead of following instructions in a will.
Does an IRA go through probate?
Generally, no. If an IRA has a valid beneficiary designation, the assets typically transfer directly to the named beneficiary without going through probate.
What happens if I forget to update my beneficiary after a divorce?
Depending on the account type and applicable laws, the beneficiary designation on file may still control who receives the account. Reviewing beneficiary forms after major life events is an important part of maintaining your estate plan.
Should I name contingent beneficiaries?
Many financial professionals recommend naming contingent beneficiaries. If your primary beneficiary passes away before you, a contingent beneficiary may help avoid unnecessary complications when the account is distributed.
How often should I review my beneficiary designations?
It’s generally a good idea to review beneficiary forms after major life events and periodicallyβsuch as every three to five yearsβto help ensure they continue to reflect your wishes.
The Bottom Line
Your will remains one of the cornerstones of a comprehensive estate plan, but it doesn’t control every asset you own.
Beneficiary designations often determine who receives retirement accounts, life insurance policies, annuities, and certain bank and brokerage accounts. That’s why keeping those designations current is just as important as updating your will.
Taking a few minutes to review your beneficiary forms today may help reduce confusion, avoid unintended consequences, and provide greater clarity for the people you care about most.
Need Help Coordinating Your Estate and Financial Plan?
Estate planning is about more than creating a will. It’s about making sure your beneficiary designations, retirement accounts, investments, insurance policies, and long-term financial goals all work together.
At Nova Wealth Management, we help individuals and families build comprehensive financial plans that include retirement planning, tax-efficient strategies, investment management, and legacy planning.
If it’s been several years since you’ve reviewed your beneficiary designationsβor if you’ve experienced a major life changeβwe’re happy to help you evaluate how those decisions fit into your overall financial plan.
Schedule a Meeting to discuss your retirement, estate planning, and long-term financial goals.
Toll-Free: (888) 677-9910
This article was inspired by an Investopedia article by Peter Gratton discussing the importance of beneficiary designations in estate planning. The original article was legally licensed through AdvisorStream.
Disclosure: Nova Wealth Management, Inc. is a Registered Investment Advisor. This article is provided for educational purposes only and should not be considered legal, tax, or investment advice. Estate planning laws vary by state and individual circumstances. Always consult with qualified legal, tax, and financial professionals before making decisions regarding your estate plan. Investing involves risk, including the possible loss of principal, and past performance is not a guarantee of future results.
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