How to Update Beneficiaries on Your Financial Accounts

10 min read

Why Beneficiary Designations Override Your Will

One of the most surprising facts in estate planning is this: for many of your most valuable assets, your will has no effect. Retirement accounts, life insurance policies, and many bank and brokerage accounts transfer directly to whoever is named on the account — regardless of what your will says.¹

This is not a loophole or an oversight. It is how these accounts were designed to work. The beneficiary designation is a contract between you and the financial institution. When you die, the institution looks at the designation on file and transfers the asset accordingly. The probate court — and your will — are not involved.¹

For most people, retirement accounts and life insurance represent some of their largest assets. Getting the beneficiary designations right on these accounts is as important as drafting a good will, and in some ways more immediately consequential.

Which Accounts Have Beneficiary Designations

Not all assets use beneficiary designations, but the ones that do tend to be significant.

Retirement Accounts

All tax-advantaged retirement accounts allow — and require — beneficiary designations:²

• Traditional and Roth IRAs
• 401(k), 403(b), and 457 plans
• SEP-IRAs and SIMPLE IRAs
• Pension plans and annuities

For 401(k) accounts, federal law (ERISA) actually requires that a surviving spouse be the primary beneficiary unless the spouse signs a written waiver.³ If you want to name someone other than your spouse as the primary beneficiary on a 401(k), your spouse must consent in writing.

Life Insurance Policies

Life insurance pays its death benefit directly to named beneficiaries and never passes through your estate — as long as beneficiaries are named. If no beneficiary is named (or if all named beneficiaries have died), the proceeds typically go to your estate and become subject to probate.

Bank and Brokerage Accounts with TOD or POD Designations

Many bank and brokerage accounts offer a simple transfer mechanism:⁴

• Payable-on-Death (POD): Common on bank savings and checking accounts. The account balance transfers directly to the named person at death.
• Transfer-on-Death (TOD): Used on brokerage and investment accounts. Works the same way — the account passes directly, bypassing probate.

These designations are typically optional. If you have not specifically added them, the account will likely need to go through probate to transfer to heirs.

Real Estate with TOD Deeds

More than half of US states now allow real estate to be transferred using a Transfer-on-Death deed (also called a beneficiary deed or TOD deed in different states). You record the deed during your lifetime, naming who inherits the property at your death. Until you die, you retain full ownership and can revoke or change the deed at any time.

This is one of the most effective ways to pass real estate outside of probate, but the rules vary significantly by state. Not every state allows TOD deeds, and some have specific requirements about how they must be executed and recorded.

What Beneficiary Designations Do Not Cover

Standard assets that do not use beneficiary designations include:

• Real estate titled solely in your name (unless you use a TOD deed or trust)
• Personal property (furniture, jewelry, vehicles in most states)
• Solely-owned business interests
• Safe deposit box contents

These assets generally require either a will or a trust to transfer at death.

When to Update Your Beneficiary Designations

The most important rule is also the simplest: review your designations after every significant life change.

Marriage

When you get married, you should immediately review all beneficiary designations and update them to reflect your new spouse wherever appropriate. Many people forget to do this, particularly on old IRAs or life insurance policies they set up years ago.

Failure to update after marriage does not automatically add a spouse as beneficiary on most accounts — the exception is 401(k) plans, where the spouse becomes the default beneficiary under federal law.³ For everything else, your pre-marriage designations remain in force.

Divorce

Divorce is arguably the highest-stakes beneficiary update scenario. In most states, divorce does not automatically remove a former spouse from beneficiary designations. Federal law (ERISA) does revoke spousal beneficiary status on 401(k) plans after divorce in some circumstances, but the rules are complicated and vary by plan and state.³

For IRAs, life insurance, and most other accounts, if you do not update the designation, your ex-spouse remains named and will receive those assets if you die first — regardless of what your divorce decree says.¹ Courts have consistently ruled that the designation on file controls, even when it clearly conflicts with the intent expressed in a divorce settlement.

Update every designation immediately when your divorce is finalized. Do not wait.

Death of a Named Beneficiary

If your primary beneficiary dies before you and you have not updated the designation, what happens next depends on whether you named a contingent beneficiary. If you did, the contingent beneficiary inherits. If you did not, the asset typically defaults to your estate and goes through probate — or the financial institution may follow a default hierarchy that does not match your wishes.

Review and update any time a named beneficiary dies.

Birth or Adoption of a Child

The arrival of a child usually prompts people to create or update their estate plan, but the beneficiary designations on existing accounts are easy to overlook. If you want a new child to benefit from a retirement account or life insurance policy, you need to update the designation explicitly.

Significant Relationship Changes

Major changes in your relationship with someone you previously named — an estrangement from a sibling, the end of a close friendship, a change in your family structure — are worth addressing. The financial institution has no way to know that your intentions have changed.

Common Beneficiary Designation Mistakes

Leaving an Ex-Spouse Named

This is the most common and most consequential mistake. As described above, a divorce does not automatically remove a former spouse from most accounts. People who forget to update their designations after divorce regularly leave significant assets to an ex-spouse — sometimes the last person they would have chosen.

Naming Your Estate as Beneficiary

Naming your estate as the beneficiary of a retirement account is almost never a good idea. When an estate inherits a traditional IRA or 401(k), the funds must typically be distributed and taxed within five years, whereas a named individual beneficiary can often stretch distributions over ten years or longer under the rules established by the SECURE Act.² Beyond the tax cost, the funds also become subject to probate and available to estate creditors.

Life insurance similarly loses a key benefit when the estate is named — the proceeds can no longer bypass probate and become part of the general estate.

Not Naming a Contingent Beneficiary

A contingent beneficiary is the backup — the person who inherits if your primary beneficiary cannot. Without one, if your primary beneficiary dies before you or declines the inheritance, the asset falls back to your estate. This is an easy problem to prevent and a surprisingly common one to find.

Most financial institutions allow you to name multiple primary beneficiaries (with percentages that add up to 100) and multiple contingent beneficiaries. Take a few minutes to fill this out completely.

Naming a Minor Child Directly

Naming a minor child directly as beneficiary sounds intuitive but creates a practical problem. Minor children cannot legally receive large sums of money directly. If a minor inherits a significant asset, a court will typically appoint a guardian of the property to manage the funds — a process that requires court supervision and ongoing reporting until the child turns 18. At that point, the child receives the full amount outright, with no restrictions.

Better approaches include naming a custodian under your state’s Uniform Transfers to Minors Act, or naming a trust that you have established for the child’s benefit.

Naming Only One Beneficiary with No Contingent

Naming a single primary beneficiary with no contingent beneficiary creates fragility. If that person dies in a common accident with you, or simply predeceases you, the asset goes through probate. Adding at least one contingent beneficiary takes two minutes and prevents this scenario entirely.

IRA Beneficiary Rules After the SECURE Act

The Setting Every Community Up for Retirement Enhancement (SECURE) Act, effective for account owners who died after December 31, 2019, significantly changed how non-spouse beneficiaries must take distributions from inherited IRAs.²

Under the current rules, most non-spouse beneficiaries must withdraw the entire balance of an inherited IRA by the end of the tenth year following the account owner’s death — the “10-year rule.”⁵ This compresses what was previously a longer distribution window, often resulting in higher income tax bills for beneficiaries.

Exceptions exist for eligible designated beneficiaries, who may use longer distribution schedules.⁵ These include:

• Surviving spouses (who may roll over the account into their own IRA)
• Minor children of the account owner (until the child reaches the age of majority)
• Disabled or chronically ill individuals
• Individuals not more than ten years younger than the account owner

For everyone else — including adult children and most other relatives — the 10-year rule applies. This makes beneficiary planning for large IRAs a significant tax planning consideration.

How to Actually Update Your Beneficiaries

Updating beneficiary designations is straightforward:

1. Log in to each financial institution’s online portal or request a change-of-beneficiary form
2. Gather the information you need: full legal names, Social Security numbers, dates of birth, and relationship to you for each beneficiary
3. Specify percentages when naming multiple beneficiaries (must total 100%)
4. Submit the form — online submissions are typically processed immediately; paper forms may take a few weeks
5. Confirm the update — request written confirmation or download a copy of the completed designation for your records

For 401(k) accounts, spousal consent may be required if you are naming someone other than your spouse.³

Build a Beneficiary Review Into Your Annual Routine

The simplest way to stay current is to review your beneficiary designations once a year — the same time you review your budget, file your taxes, or do whatever annual financial review you already do. A complete review of all your accounts rarely takes more than an hour, and it ensures that your estate plan reflects your current intentions rather than who you knew a decade ago.

The assets that pass through beneficiary designations are often the most significant — your 401(k), your IRA, your life insurance. Keep them current, and the rest of your estate plan is far more likely to work as intended.

References

1. Beneficiary Designations in Estate Plans - American Bar Association, accessed June 2026, https://www.americanbar.org/groups/gpsolo/resources/ereport/archive/beneficiary-designations-estate-plans/
2. Retirement Topics — Beneficiary - Internal Revenue Service, accessed June 2026, https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-beneficiary
3. FAQs about Retirement Plans and ERISA - U.S. Department of Labor, accessed June 2026, https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/faqs/retirement-plans-and-erisa.pdf
4. Trust Accounts — Payable-on-Death and Transfer-on-Death Accounts - Federal Deposit Insurance Corporation, accessed June 2026, https://www.fdic.gov/financial-institution-employees-guide-deposit-insurance/trust-accounts
5. Publication 590-B: Distributions from Individual Retirement Arrangements (IRAs) - Internal Revenue Service, accessed June 2026, https://www.irs.gov/publications/p590b
6. Required Minimum Distributions for IRA Beneficiaries - Internal Revenue Service, accessed June 2026, https://www.irs.gov/retirement-plans/required-minimum-distributions-for-ira-beneficiaries
7. Introduction to Wills - American Bar Association, accessed June 2026, https://www.americanbar.org/groups/real_property_trust_estate/resources/estate-planning/intro-wills/
8. Beneficiary — Wex Legal Dictionary - Cornell Law School Legal Information Institute, accessed June 2026, https://www.law.cornell.edu/wex/beneficiary
9. Retirement Plan and IRA Required Minimum Distributions FAQs - Internal Revenue Service, accessed June 2026, https://www.irs.gov/retirement-plans/retirement-plan-and-ira-required-minimum-distributions-faqs

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