Your will does not control everything. In fact, for many families, the largest assets in the estate, retirement accounts and life insurance, pass entirely outside the will based on beneficiary designations filed with the account custodian or insurance company. If those designations are incorrect, outdated, or poorly structured, the results can be devastating. We see these mistakes regularly, and they are almost always preventable.
Why Beneficiary Designations Override Your Will
When you open a 401(k), IRA, or life insurance policy, you name a beneficiary on the account paperwork. When you die, that asset passes directly to the named beneficiary by operation of contract. It does not go through probate. Your will has no authority over it.
This means that even if your will says "I leave everything to my children equally," a retirement account with an ex-spouse still listed as the beneficiary will go to the ex-spouse. The will is irrelevant. The beneficiary designation is the controlling document.
This is not a technicality. It is the single most common estate planning failure we encounter.
Mistake 1: Naming Your Estate as Beneficiary
Some people name their estate as the beneficiary of a retirement account, thinking this will allow the account to be distributed according to their will. This is almost always a mistake, for several reasons.
First, if the beneficiary is the estate, the retirement account goes through probate, which adds time, cost, and administrative complexity. Second, the account loses the ability for beneficiaries to stretch distributions over their life expectancy. Under the SECURE Act and SECURE 2.0 Act, most non-spouse beneficiaries must withdraw the entire account within 10 years, but naming the estate as beneficiary can accelerate the distribution timeline even further, requiring full distribution within five years. Third, a retirement account payable to the estate is exposed to the decedent's creditors, whereas an account payable to a named beneficiary may have additional creditor protection.
The solution is to name individual beneficiaries or, when appropriate, a properly drafted trust.
Mistake 2: Not Understanding Per Stirpes vs. Per Capita
When you name multiple beneficiaries, you need to specify what happens if one of them predeceases you. The two most common options are per stirpes and per capita, and they produce very different results.
Per stirpes means "by branch." If you name your three children as equal beneficiaries per stirpes and one child predeceases you, that child's share passes to their children (your grandchildren). The deceased child's branch still receives their one-third share, divided among their descendants.
Per capita means "by head." If you name your three children per capita and one child predeceases you, the surviving two children each receive one-half. The deceased child's family receives nothing.
Most clients intend per stirpes, but many beneficiary forms default to per capita unless you specify otherwise. Review your designations carefully to ensure the form reflects your intent. If the form does not offer a per stirpes option, you may need to add specific language or name contingent beneficiaries explicitly.
Mistake 3: Naming Minor Children Directly
If you name a minor child as the beneficiary of a life insurance policy or retirement account, the insurance company or account custodian cannot distribute the funds to the child. A minor cannot legally receive or manage a large financial asset. The result is a court-supervised guardianship of the property, which is cumbersome, expensive, and public.
Under Pennsylvania law, a court would need to appoint a guardian of the estate for the minor child (20 Pa.C.S. Section 5101 et seq.). The guardian must post a bond, provide annual accountings, and obtain court approval for expenditures. When the child turns 18, they receive the full balance with no restrictions.
The better approach is to name a trust for the benefit of the minor child. The trust can specify when and how distributions are made, and can extend well past age 18 if you prefer that the funds be managed until the child is older and better equipped to handle a significant inheritance.
Mistake 4: Failing to Update After Divorce
Pennsylvania has a statute, 20 Pa.C.S. Section 6111.2, that automatically revokes beneficiary designations in favor of a former spouse upon divorce for certain types of accounts and policies governed by state law. However, this statute does not apply to all assets. Federal law governs ERISA-qualified retirement plans (most employer-sponsored 401(k) plans and pensions), and under federal law, the named beneficiary controls regardless of divorce.
The United States Supreme Court addressed this directly in Sveen v. Melin (2018), upholding state revocation-upon-divorce statutes, but the ruling applies only to assets governed by state law. For ERISA plans, Hillman v. Maretta (2013) and prior cases confirm that federal law preempts state revocation statutes.
The practical takeaway: do not rely on Pennsylvania's automatic revocation. After a divorce, immediately update every beneficiary designation on every account and policy. Do it affirmatively, in writing, with the account custodian or insurance company.
Mistake 5: Forgetting Contingent Beneficiaries
Many people name a primary beneficiary but leave the contingent beneficiary line blank. If the primary beneficiary predeceases you and there is no contingent beneficiary, the asset may default to the estate, triggering all the problems discussed above.
Always name at least one contingent beneficiary. For married couples, the typical structure is: primary beneficiary is the spouse, contingent beneficiaries are the children (or a trust for the children). Review this structure periodically, especially after the birth of a child, a death in the family, or a divorce.
Mistake 6: Outdated Designations After Remarriage
A second marriage creates particular complexity. If you remarry and do not update your beneficiary designations, your first spouse (if they are still listed) may inherit assets you intended for your new spouse. Conversely, if your first spouse is already deceased or removed and you name your new spouse, your children from the first marriage may be unintentionally disinherited from those accounts.
Blended family situations require coordinated planning between your will, your trust (if any), and every beneficiary designation. The designations and the estate plan must work together.
The Annual Review
Beneficiary designations are not a one-time task. We recommend reviewing all designations at least annually and after every major life event: marriage, divorce, birth of a child, death of a beneficiary, or significant change in financial circumstances. Keep a written record of all accounts with beneficiary designations, including the custodian, account number, and current beneficiaries.
At Ament Law Group, we review beneficiary designations as part of every estate plan we create. If you have not reviewed your designations recently, or if you have experienced a major life change, call (724) 733-3500 or schedule a consultation.
Related resources:
- Estate Planning for Blended Families
- How to Create a Will in Pennsylvania
- Understanding Pennsylvania Inheritance Tax
- Estate Planning Services
- Schedule a Free Consultation
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