Most people know they need a will, but far fewer realize that beneficiary designations often control where money actually goes. That means if your designations are outdated, missing, or incomplete, your assets may not pass the way you intended. It’s also important to remember that beneficiary designations typically override instructions in your will for accounts and assets that pass directly by designation.
Beneficiary designations are one of the simplest estate planning tools you have, but they are also one of the easiest to forget. They tell financial institutions who should receive certain assets after you die, and they can help those assets avoid probate when created correctly. That makes them especially important for retirement accounts, life insurance, and other accounts that allow a named recipient.
If you do nothing else, reviewing these designations regularly can prevent major headaches later.
1. Retirement Accounts
401(k)s, IRAs, 403(b)s, pensions, and other retirement accounts typically pass directly through beneficiary forms — not through your will.
That means:
- An ex-spouse could still be listed
- Adult children may be listed unevenly
- A deceased beneficiary may still appear
- Contingent beneficiaries may never have been added
- Old employer plans may still contain outdated paperwork
This becomes especially important for people who have changed jobs multiple times over the years and accumulated several retirement accounts along the way. And because retirement accounts often represent a significant portion of a household’s wealth, mistakes here can create major complications for families.
It’s also important to remember that inherited retirement account rules have changed significantly in recent years, especially after the SECURE Act. The tax consequences for beneficiaries can be very different from what they used to be.
2. Life Insurance Policies
Life insurance beneficiary designations are another area where people commonly assume “it’s already handled.” However, life insurance policies often stay in force for decades, which means beneficiary information can easily become outdated as families evolve.
This is particularly common when:
- Policies were originally established through an employer
- Coverage was purchased before children were born
- Policies predate remarriage
- Adult children are now financially independent
- Trust planning has changed
And unlike many financial accounts, people sometimes forget they even have multiple policies. Reviewing both the coverage amount and the beneficiary structure periodically can help ensure the policy still aligns with your overall goals.
3. Bank Accounts with Payable-on-Death Designations
Many people don’t realize that checking accounts, savings accounts, CDs, and even some brokerage accounts may have Transfer-on-Death (TOD) or Payable-on-Death (POD) instructions attached to them.
These designations allow accounts to pass directly to named beneficiaries outside of probate, which can be helpful. But it can also create unintended consequences if these accounts were set up years ago and never revisited.
For example:
- One child may accidentally inherit a disproportionate share of liquid assets
- A beneficiary may no longer be appropriate
- The designations may conflict with broader estate planning goals
- Someone added “temporarily” for convenience may still be listed
This becomes especially important for aging parents who may have added adult children to accounts for bill-paying purposes without fully understanding the long-term implications.
4. Health Savings Accounts (HSAs)
HSAs are often overlooked in estate conversations entirely. But these accounts have unique tax treatment depending on who inherits them.
For spouses, an HSA can generally transfer smoothly and continue receiving favorable tax treatment. For non-spouse beneficiaries, the rules can be very different and may create taxable income.
As HSA balances continue growing for many high earners and retirees using them as long-term healthcare savings vehicles, these accounts are becoming more meaningful pieces of overall wealth planning. And because many people opened HSAs through employers years ago, beneficiary designations may never have been updated afterward.
For more detailed information, visit our article What Happens to Your HSA When You Die?
5. Transfer-on-Death Deeds and Titled Assets
Depending on your state, homes, vehicles, or other titled assets may also include beneficiary-style ownership arrangements.
These can include:
- Transfer-on-Death deeds
- Joint ownership with rights of survivorship
- Vehicle transfer instructions
- Brokerage TOD registrations
These designations can help assets transfer efficiently, but they need to work cohesively with the rest of your estate plan.
Final Thoughts
If you only focus on one part of estate planning this year, start with beneficiary designations. They are simple to set up, but powerful enough to determine where important assets actually go.
Most beneficiary mistakes are completely preventable, but they’re also incredibly common. And unfortunately, they’re often discovered at the worst possible time, when families are already grieving, stressed, and trying to navigate complicated financial decisions.
If it’s been a while since you’ve reviewed your beneficiary designations, now may be a good time to revisit them as part of your overall financial plan. At Approach Retirement Advisors, we help clients coordinate retirement accounts, estate planning considerations, insurance policies, and other moving pieces so everything works together more cohesively. Schedule a conversation to review your plan and make sure the details still reflect your wishes today.