Your Beneficiary Designations Override Your Will
Beneficiary designations have gotten complicated with all the estate planning misinformation flying around. As someone who watched a family friend’s IRA go to an ex-spouse because of an outdated form, I learned everything there is to know about how these designations actually work. Today, I will share it all with you — because this stuff matters more than almost anything else in your financial plan.
Here’s the fact that blindsides most people: the beneficiary form you filled out when you opened your IRA is what determines who gets that money. Not your will. Not your trust. Not what you told your kids at Thanksgiving. The form on file with your IRA custodian is the final word, full stop.
I can’t stress this enough: an ex-spouse you listed as beneficiary back in 2005 could inherit your $500,000 IRA in 2025, even if your current will leaves everything to your children. Courts have upheld this outcome over and over again. The fix is dead simple — review and update your beneficiary designations regularly. I’m talking five minutes that could save your family a nightmare.
Primary vs. Contingent Beneficiaries
Every IRA lets you name both primary and contingent (secondary) beneficiaries. Primary beneficiaries are first in line. If all of them predecease you or choose to disclaim the inheritance, the contingent beneficiaries step up.
Example structure:
- Primary: Spouse (100%)
- Contingent: Child A (50%), Child B (50%)
So if your spouse survives you, they get everything. If your spouse passes before you do, the kids split it 50/50. Simple and clean. But here’s the thing — without contingent beneficiaries listed, the account typically falls into your estate. That means probate. And probate means delays, legal fees, and potentially much worse tax treatment. Don’t let that happen.
Per Stirpes vs. Per Capita: One Word That Changes Everything
This is one of those details that sounds like legal jargon until it matters — and then it matters enormously. When you name multiple beneficiaries, you have to specify how inheritance flows if one of them dies before you.
Per capita: Only living beneficiaries inherit. If Child A dies before you, Child B gets 100%. Child A’s kids? They get nothing from this account.
Per stirpes: A deceased beneficiary’s share passes down to their descendants. So if Child A passes before you, Child A’s kids inherit that 50% share.
For most families, per stirpes is what they’d actually want. But you have to explicitly check that box on the beneficiary form. The default varies by custodian, and I’ve seen people accidentally leave grandchildren out because they assumed the “right” option was already selected.
Naming Minors: A Common Mistake
I see this one all the time, and it always creates headaches. Minor children cannot legally inherit IRA assets directly. If you name your 10-year-old as beneficiary and something happens to you before they turn 18, a court has to appoint a guardian to manage those assets. This process is expensive, slow, and completely public. Not what anyone wants.
Better options:
- Name a custodian under the Uniform Transfers to Minors Act (UTMA)
- Set up a trust with the minor as beneficiary and name the trust on the IRA
- Name a responsible adult as primary beneficiary with clear instructions to use the funds for the minor’s benefit
If you go the trust route, make sure it qualifies as a “see-through” trust. That preserves the stretch distribution options for the beneficiary — which can be worth a lot in tax savings over time.
The Dangers of Naming Your Estate
Probably should have led with this section, honestly. Writing “my estate” as your IRA beneficiary is almost never the right move. Here’s why it can really hurt your heirs:
- Accelerated distribution: If you die before RMDs start, the entire IRA has to be emptied within 5 years. If after, it’s based on your remaining life expectancy — which is typically much faster than the 10-year rule that individual beneficiaries get
- Probate: The IRA assets get dragged through probate, meaning delays, attorney fees, and public court records
- Creditor exposure: Assets going through probate can be targeted by your creditors’ claims
Always name specific individuals, trusts, or charities directly. Just avoid “my estate” unless an estate planning attorney has a very specific reason for recommending it in your situation.
When to Update Beneficiary Designations
That’s what makes regular reviews endearing to us financial planners — a few minutes of your time can prevent years of legal disputes.
Review your designations after any major life change:
- Marriage or divorce (especially divorce — this is the #1 cause of outdated forms)
- Birth or adoption of a child
- Death of a current beneficiary
- Any significant change in family relationships
- Moving to a different state, since community property rules vary and can affect what your spouse is entitled to
- At bare minimum, check them every 3-5 years even if nothing has changed
The Multi-Custodian Problem
If you’ve got IRAs spread across multiple institutions — Fidelity here, Schwab there, maybe an old one at Vanguard — each account has its own separate beneficiary form. Updating one does absolutely nothing for the others. I’ve seen people meticulously update their Fidelity beneficiary after a divorce and completely forget about the Schwab IRA with the ex-spouse still listed.
My advice: create a master list of every retirement account and who’s currently listed as beneficiary. Review it annually. Keep it with your other important documents.
Documentation Matters
This last point might sound paranoid, but keep copies of every beneficiary designation form you submit. Custodians lose records. It happens more than you’d think. And trying to resolve disputes after someone passes, without documentation, is an ugly process nobody wants to deal with.
Store copies alongside your estate planning documents and make sure your executor knows where to find them. The beneficiary designation is honestly one of the most important financial documents you’ll ever sign. Five minutes reviewing it now could save your heirs years of legal headaches and tens of thousands in unnecessary taxes.
