Most people assume their Will controls where everything goes when they die. It doesn’t. Some of the biggest assets a family owns, like a 401(k), an IRA, or a life insurance policy, are controlled by a separate form: the beneficiary designation. Whoever is named on that form gets the account, no matter what the Will says.
Most people fill out that form once, when the account is opened, and never look at it again. That’s where the trouble starts.
QUICK OVERVIEW (TL;DR SUMMARY)
- Some of your most valuable assets, like retirement accounts and life insurance, aren’t controlled by your Will at all. They go to whoever is named on the beneficiary form.
- If that form is outdated, blank, or lists someone who has since died, the account can end up in probate court even if you have a perfectly good Will.
- Beneficiary designations can also interfere with Medicaid planning if they leave money directly to a spouse or family member who needs to stay eligible for benefits.
- Check these forms every year and after any major life change: marriage, divorce, a birth, a death, retirement, or a new long-term care need.
- Edwards Group’s Asset Coordinators review and track these designations as part of an ongoing plan, not a one-time form.
TABLE OF CONTENTS
- What Assets Skip Your Will Entirely?
- What Happens When a Beneficiary Form Is Blank or Outdated?
- Can a Beneficiary Designation Interfere with Medicaid Planning?
- When Should You Recheck Your Beneficiaries?
- How Do You Keep This From Becoming a Problem?
- FAQs
What Assets Skip Your Will Entirely?
A surprising number of a family’s most valuable assets never touch the Will at all. Life insurance policies, annuities, retirement accounts like 401(k)s and IRAs, and bank or investment accounts with a payable-on-death or transfer-on-death designation all pass directly to whoever is named on that account’s beneficiary form. If the Will says one thing and the form says another, the form wins.
The accounts and policies where this applies:
- Life insurance policies
- Annuities
- Retirement accounts, including 401(k)s and IRAs
- Bank accounts with a payable-on-death (POD) designation
- Investment accounts with a transfer-on-death (TOD) designation
What Happens When a Beneficiary Form Is Blank or Outdated?
We saw this firsthand with a client who had an old 401(k) from a previous job. His parents were still listed as the beneficiaries, from decades earlier. By the time he passed away, both of his parents had already died, so the account had no valid beneficiary on file at all.
The result: instead of going directly to his children the way it should have, the 401(k) had to go through probate court, an expensive and public process that a good beneficiary designation would have avoided entirely.
This is not a rare situation. It’s one of the most common problems we encounter when we review a new client’s full financial picture.
Can a Beneficiary Designation Interfere with Medicaid Planning?
We worked with a family where one spouse was already in nursing home care and receiving Medicaid benefits. When the other spouse died, their beneficiary designations left a significant amount of money directly to the spouse in care.
That inheritance now puts the surviving spouse’s Medicaid eligibility at risk, because Medicaid has strict limits on how much a recipient can own. A beneficiary designation that isn’t coordinated with the rest of the plan can undo years of careful long-term care planning in a single moment.
When Should You Recheck Your Beneficiaries?
Life tends to move faster than paperwork gets updated. A marriage, a divorce, a new grandchild, the death of someone who was named on an old form, a job change or retirement, a spouse’s move into long-term care. Any of these is reason enough to go back and check who’s actually listed.
Life changes worth a beneficiary review include:
- Marriage
- Divorce
- A birth in the family
- A death of someone previously named as a beneficiary
- A job change, including retirement
- A spouse’s long-term care needs
- A disability affecting a child or grandchild
How Do You Keep This From Becoming a Problem?
The fix is more straightforward than most people expect. Start with a simple list: every retirement account, life insurance policy, annuity, and investment account you own, along with who’s currently named as the beneficiary and when you last checked it. Review that list once a year, on a date that’s easy to remember, like tax day. We’ve even created a downloadable worksheet to make it easier.
For families who want this handled as part of an ongoing relationship rather than a once-a-year chore, our Dynasty Program keeps beneficiary designations, asset titling, and the rest of your plan current as life changes.
This is also why Edwards Group has dedicated Asset Coordinators on staff. Properly titling and coordinating assets is one of the most common problems we see, even in plans drafted by other attorneys. A Will and a Trust only work as well as the assets that are actually lined up behind them.
If you have questions about your own beneficiary designations or any other part of your estate plan, call us at 217-726-9200. We’re happy to walk through it with you.
FAQs
No. Retirement accounts and life insurance policies are controlled by the beneficiary designation on file with that company, not by your Will. Whoever is named on that form receives the account directly.
The account typically has to go through probate court to determine who receives it, even if you have a valid Will. This is slower and more expensive than a properly updated beneficiary form.
Yes. If a designation leaves money directly to a spouse or family member who is receiving Medicaid benefits, it can put their eligibility at risk. Beneficiary designations should be coordinated with the rest of your long-term care plan.
At least once a year, and immediately after a marriage, divorce, birth, death, retirement, or a new long-term care situation in the family.
A payable-on-death (POD) or transfer-on-death (TOD) account passes directly to the person named on the account, bypassing the Will and probate entirely. A Will only controls assets that don’t already have a named beneficiary.
Yes. Our Asset Coordinators work with clients to review and properly title accounts as part of the planning process, not just draft the Will or Trust and stop there.