Beneficiary Designation Audit

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

• Living trust services at Ridley Law
• Trust funding guide, for getting the trust actually into the picture
• Inherited IRA 10-year rule in California