A married couple in their 60s walked us through their estate plan recently. Beautifully drafted trust. Pour-over will. Detailed asset titling instructions. Everything had been done right by a careful attorney — except for the fact that the husband's old 401(k) from a previous employer, the one with $2.1M in it, still listed his ex-wife as the primary beneficiary.
Nobody had ever asked. The trust language was completely overridden by a form he had signed in 1996 and forgotten about.
Why this happens
Most retirement accounts and life insurance policies pass to beneficiaries outside the will. The beneficiary designation form is a legal contract directly between the account-holder and the institution. It supersedes the will, the trust, and any other estate document. Courts have repeatedly upheld this even when the result is clearly contrary to the decedent's intent.
The accounts most commonly affected:
- 401(k) and 403(b) plans
- Traditional and Roth IRAs
- Health Savings Accounts (HSAs)
- Life insurance policies
- Annuities
- Transfer-on-Death (TOD) brokerage accounts
- Payable-on-Death (POD) bank accounts
- Pension survivor designations
Where things go wrong
Stale designations
Marriages, divorces, deaths, and estrangements happen. Beneficiary forms don't update themselves. The most expensive cases we've seen — including the example above — involved beneficiaries listed two life events ago.
Missing contingents
Primary beneficiary forms are well-tracked. Contingent (secondary) beneficiaries often aren't named at all. If the primary predeceases the account-holder and no contingent is named, the account flows through probate — into the will — even if the will doesn't mention the account. The trust loses.
Per stirpes vs. per capita
If you name three children equally and one predeceases you, what happens to that child's share? Per stirpes sends it to that child's descendants. Per capita redistributes among surviving siblings. Most beneficiary forms force a choice. Most account-holders have no idea which they chose.
Trusts as beneficiaries
Naming a trust as the beneficiary of a retirement account can be the right choice — or a tax disaster — depending on whether the trust qualifies as a "see-through" trust under IRS rules. The Secure Act 2.0 changed the inherited IRA rules; trusts that worked under the old rules sometimes accelerate distributions painfully under the new ones.
What to do
- List every account, policy, and benefit form in one document
- Pull the current beneficiary designation for each one — primary and contingent — directly from the institution
- Reconcile against the estate plan with your attorney
- Schedule the audit annually and after any major family event (marriage, divorce, birth, death, adoption)
An estate plan is only as good as its weakest beneficiary form. The trust matters; the will matters; but on the day someone reads the trust, the institution has already paid out based on a piece of paper from 1996.
At IronBridge, every annual review includes a beneficiary audit alongside the household's attorney. Schedule a review.