Beneficiary Designation Audit

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What This Tool Does

Enter your marital status and whether you have a living trust, then add every account or policy that has a beneficiary designation: retirement accounts, life insurance, annuities, and payable- or transfer-on-death accounts. This tool checks who's named on each one and flags the problems that actually matter, an ex-spouse still on a 401(k), a blank designation, no contingent beneficiary, and more.

Why This Matters More Than Your Trust

Beneficiary designations are a contract between you and the institution holding the asset. When you name a beneficiary on a 401(k), an IRA, or a life insurance policy, that instruction controls who gets the money when you die, regardless of what your will says or what your trust says. A beneficiary designation overrides a will. It overrides a trust. It even overrides a court order, in some cases, unless the designation itself is changed.

This is the single most common estate planning failure Eric sees, and it has nothing to do with the trust being wrong. The trust is often fine. The problem is that a retirement account or life insurance policy still names an ex-spouse, a deceased parent, or "my estate" as beneficiary, and nobody ever updated it. A perfectly drafted trust cannot fix a beneficiary designation that says something else.

ERISA Preemption: Why a Divorce Decree Isn't Enough

California law includes a helpful safety net: under Cal. Prob. Code § 5600, a divorce judgment automatically revokes an ex-spouse's beneficiary designation on many instruments, as if the ex-spouse had died before you. Most people assume this means their divorce automatically fixed the problem. It didn't, at least not everywhere.

Federal law preempts state law for employer-sponsored retirement plans governed by ERISA, meaning 401(k)s, 403(b)s, and most pension plans. The U.S. Supreme Court confirmed this in Egelhoff v. Egelhoff: a state revocation-on-divorce statute like § 5600 does not apply to an ERISA plan. If your ex-spouse is still named on an ERISA-governed account, they get the money when you die, no matter what your divorce judgment says and no matter how many years have passed. The fix has to happen directly with the plan administrator, in writing, on that plan's own beneficiary form.

IRAs, life insurance, and other non-ERISA accounts are different; § 5600 does apply there, which is a real protection but not one worth relying on. Confirm every designation directly rather than assuming the divorce did the work for you.

Community Property Rights for Spouses

California is a community property state, and that has two separate effects on beneficiary designations. First, ERISA itself requires spousal consent before you can name anyone other than your spouse as the primary beneficiary of a 401(k) or 403(b). If you named someone else without your spouse signing a written waiver, that designation may not hold up.

Second, even where ERISA doesn't apply, a retirement account funded with earnings during marriage is generally community property, meaning your spouse may have a legal claim to their share regardless of who is named as beneficiary. Naming parents, children from a prior relationship, or anyone else as primary beneficiary on an account funded during the marriage can create a conflict between the named beneficiary and community property law. This is worth confirming rather than assuming, especially for accounts opened before the marriage or funded with a mix of separate and community funds.

The "My Estate" Trap

Naming your estate as beneficiary sounds harmless. It isn't. It routes the account straight through probate, which is exactly what a beneficiary designation is supposed to avoid, adding months of delay and statutory probate fees to an asset that could have passed directly to a person.

For retirement accounts, it's worse than that. Naming your estate as beneficiary eliminates the option for an individual beneficiary to use the 10-year distribution window (or, for a small category of eligible beneficiaries, a longer stretch), which controls how quickly the account has to be emptied and taxed after your death. An estate-as-beneficiary IRA generally has to be distributed and taxed much faster, often within five years, compounding an already bad outcome with an accelerated income tax bill. See our guide to the inherited IRA 10-year rule for how this plays out for the people who actually inherit the account.

A blank or missing beneficiary designation produces roughly the same result. Most plans default an unnamed account to the estate, so "I never got around to naming anyone" and "I named my estate on purpose" end up in the same place: probate, and a faster tax clock.

Why a Contingent Beneficiary Isn't Optional

A primary beneficiary who dies before you do is more common than people expect, especially when the primary beneficiary is a spouse or a parent close to your own age. If no contingent (backup) beneficiary is named, the account falls back to the plan's default rule when the primary beneficiary predeceases you, and that default is usually the estate. Everything above about probate and the accelerated tax clock applies again.

Naming a contingent beneficiary costs nothing and takes one phone call or one form. Leaving it blank is a bet that your primary beneficiary outlives you, and it's a bet a surprising number of estates lose.

How This Connects to Your Trust

If you have a living trust, it's tempting to assume everything routes through it automatically. It doesn't. A trust only controls what's actually titled in the trust's name or what specifically names the trust as beneficiary. Retirement accounts are usually never retitled into a trust during your lifetime, since doing so can trigger immediate taxation; instead, the trust is added as a beneficiary designation, the same way a person would be. If that step never happened, the trust has no effect on that account at all, and the account passes according to whatever the beneficiary form actually says.

Naming a trust as an IRA beneficiary has its own tradeoffs and isn't automatically the right move for every account. But if your estate plan assumes the trust controls everything and none of your accounts actually name it, that's a gap worth closing deliberately, not by accident. For the mechanics of getting assets correctly titled or designated to your trust, see our trust funding guide.

How Often to Check

Review beneficiary designations after any of these events: marriage, divorce, the birth or adoption of a child, the death of a named beneficiary, a new job with a new retirement plan, or any time you sign or amend a trust. Absent a triggering event, checking every two to three years catches the designations that quietly drift out of date, old employer 401(k)s especially, since those rarely get a second look once you've moved to a new job.

Related Resources

Found a problem? Not sure what to do about it?

Talk to Eric. A free 30-minute call, no pitch. He'll tell you which designations actually need to change, what to fix directly with the plan administrator, and how it should line up with your trust.

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Frequently Asked Questions

My will says everything goes to my children. Doesn’t that override an old beneficiary form?

No, and this is the misunderstanding that does the most damage. A beneficiary designation is a contract between you and the institution. It passes the asset directly at your death, outside your will and outside your trust, and no language in either document reaches it. If your 401(k) still names an ex-spouse and your will leaves everything to your children, the ex-spouse gets the 401(k). The will never touches it.

I got divorced. Doesn’t California automatically remove my ex?

Partly, and the exception is the one that matters most. California Prob. Code § 5040 revokes a non-probate transfer to a former spouse on dissolution. But federal ERISA law preempts state law for employer-sponsored plans, and the U.S. Supreme Court confirmed in Egelhoff v. Egelhoff that state revocation-on-divorce statutes don’t apply to them. So your IRA may be cleaned up by § 5040 while your 401(k), your pension, and your employer life insurance still pay your ex-spouse exactly as the form says. In Kennedy v. Plan Administrator the Court went further: the plan documents control, even against a waiver signed in the divorce. Change the forms yourself.

Can I just name my trust as beneficiary of everything?

For life insurance and non-retirement accounts, often yes, and it’s a clean way to keep everything under one set of instructions. For retirement accounts it’s a drafting question, not a default. Naming a trust on an IRA or 401(k) only works well if the trust is written to qualify as a see-through trust; if it isn’t, the payout can collapse into a five-year window and accelerate the income tax badly. Trusts drafted before 2020 were built around distribution rules that no longer exist. Have the trust read before you name it.

What happens if I name a minor child directly?

The insurer or custodian won’t hand money to a child, so the court appoints a guardian of the estate to hold it. That’s a court proceeding with a bond, annual accountings, and court supervision until the child turns 18, at which point they receive the entire balance outright on their birthday. For a meaningful sum that’s rarely what a parent wanted. Name a trust for their benefit instead, or at minimum a custodian under the California Uniform Transfers to Minors Act.

Is naming “my estate” as beneficiary a safe default?

It’s the option that costs the most. Naming your estate pulls the asset into probate, which it would otherwise have avoided entirely, and adds it to the value the statutory fee is calculated on. For a retirement account it also usually destroys the ability to stretch distributions, since an estate isn’t a designated beneficiary. Naming people, or a properly drafted trust, avoids both problems.

What’s a contingent beneficiary and do I really need one?

It’s who takes if your primary beneficiary dies before you or disclaims. You need one. Without a contingent named, the asset falls to the plan’s default, which is often the estate, and you land back in probate. Naming contingents also lets you say what happens if a child predeceases you leaving children of their own, which is a question a one-line form doesn’t ask but your family will.

How often should I check these?

Annually, and immediately after a marriage, divorce, birth, death, job change, or account rollover. Rollovers are the quiet one: moving a 401(k) to an IRA creates a brand new account, and the old beneficiary designation does not travel with it. The new custodian’s default is often “spouse, or estate if none.” Plenty of carefully planned estates have been undone by a rollover nobody thought to re-designate.

Where do I actually find out who’s named?

Ask each institution in writing for a copy of the current beneficiary designation on file. Do not rely on what you remember signing, and do not rely on the online portal alone, which sometimes shows a blank field for accounts that do have a designation on paper. Get it confirmed in writing and keep the confirmations with your estate planning documents. The beneficiary designation guide lists what to request from each type of institution.

If the audit turned up something that looks wrong, call 805-244-5291 and we’ll go through it.

Want a straight read on where you stand?

Talk to Eric. A free 30-minute call, no pitch. He’ll tell you where you’re exposed, what it would cost to fix, and what you can skip.

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