Most people think their will controls who gets their IRA. It doesn’t. The beneficiary form on file with the custodian controls. If that form names your brother and your will names your kids, the IRA goes to your brother. The will is irrelevant to that account.
This comes up in our office constantly. Someone hires us, we draft a will and a trust, we coordinate everything carefully. Then nobody pulls the beneficiary forms. Five years later the client dies, and the largest single asset in the estate, often the IRA, goes somewhere the plan never contemplated.
A will controls probate assets. Retirement accounts, life insurance, annuities, and accounts with payable-on-death or transfer-on-death designations are not probate assets. They pass by contract. The contract is the beneficiary form sitting in a file at Fidelity or Schwab or Northwestern Mutual. Whatever that form says is what the custodian does. They are not going to read your will. They are not going to call your lawyer. They follow the paperwork they have.
The Old Form Problem
The most common version of this is a form somebody filled out twenty years ago and never looked at again. Since then there has been a death in the family, new grandchildren, a falling out, a reconciliation. None of that touches the form. When the account holder dies, the money goes where the form says. Update the form.
The Blank Form Problem
People assume that if no beneficiary is listed, the will takes over. Sometimes. Often not. The custody agreement or plan document usually has a default. For an IRA, the default is frequently the estate, which means the account gets dragged into probate and, worse, loses the ability to be stretched over a designated beneficiary’s life expectancy under the SECURE Act rules. The income tax consequences of paying an IRA to an estate are bad. The probate is avoidable. Both happen because nobody filled out the form.
Naming Minor Grandchildren Directly
Grandparents do this all the time. They list the grandchildren by name on the IRA or the life insurance, splitting it equally. The grandparent dies. The custodian will not hand a check to a 14-year-old. Someone has to go to court and open a guardianship of the property, which in Florida means a bonded guardian, annual accountings, court approval for distributions, and lawyer fees the whole way. Then on the child’s 18th birthday the entire balance is handed over with no restrictions. An 18-year-old with a $400,000 check is not a plan. It’s an outcome.
The fix is a trust. You name the trust as the beneficiary, the trust holds the money, and the trustee distributes it on whatever terms you set. The trust has to be drafted to qualify as a designated beneficiary under the IRS rules so the income tax stretch is preserved. Not every trust does. This is technical, and it’s worth getting right.
Naming a Disabled Beneficiary Directly
This one breaks my heart every time I see it. The parents have a child receiving SSI or other needs-based government benefits. They went to a lawyer, they paid for a special needs trust, they did the planning. Then they listed the child by name on the IRA beneficiary form because that’s what the form asked for. The parents die. The IRA pays directly to the child. The benefits stop. The trust the parents paid to create sits there empty.
If you have a child or grandchild receiving needs-based benefits, the beneficiary form needs to direct the account to the special needs trust, not to the individual. That’s the entire point of the trust. A form that ignores it undoes the whole plan.
What to Do This Week
Pull every beneficiary form. IRA, Roth IRA, 401(k), 403(b), pension, life insurance, annuity, any bank or brokerage account with a POD or TOD designation. Look at the primary beneficiary. Look at the contingent beneficiary. Confirm the percentages add to 100. Confirm the named people are still the people you want, still alive, and still the right age for an outright distribution.
Then ask the question that matters: if I died tomorrow, does this form send the money to the right place, in the right form, to the right person? If the answer is no, or you’re not sure, fix it. The form takes ten minutes. The cleanup after you’re gone takes years.
If you’ve done estate planning with us or anyone else and never coordinated the beneficiary designations with the plan, you don’t have a plan. You have a will and some unrelated paperwork.