Consider a retired engineer (call him David) who had been meticulous about his estate plan. After his first marriage ended, he worked with an attorney to update his will. He established a trust. He sat down and named his second wife and their children as beneficiaries throughout his estate documents.
He thought he had covered everything.
What he had not covered was the IRA. Years earlier, when he rolled his 401(k) from his first employer into an individual retirement account, he filled out a beneficiary designation form. He named his first wife. He forgot to check that account after the divorce. He forgot to check it after he remarried. He forgot to check it when his children were born.
When David died, $380,000 from that IRA went to his ex-wife. His second wife and their children received nothing from that account.
His will did not control it. His trust did not control it. The beneficiary designation form — filled out years earlier and never revisited — controlled it.
While this is a hypothetical scenario, it is one that families face all too frequently–where overlooking one “small” component of the estate plan creates real consequences.
It does not have to happen this way.
Why Beneficiary Designations Override Everything
Beneficiary designations are not estate documents. They are contract designations. That distinction is the legal reality most clients (or more specifically, their intended beneficiaries) don’t learn until it’s too late.
When you open an IRA, a 401(k), a life insurance policy, or an annuity, the account is governed by a contract between you and the institution holding it. That contract specifies who receives the assets when you die — through beneficiary designations. It does not consult your will. It does not ask your estate attorney. It does not check whether you got divorced. It delivers the assets to the designated name on the form.
The probate court has no jurisdiction over these accounts (unless no beneficiary designation is made whatsoever — which can create even greater issues). A beneficiary designation passes assets outside of the estate, outside of probate, and outside of any trust unless the trust itself is named as beneficiary. Your executor cannot intervene. Your heirs cannot contest it in most circumstances. The designation controls.
Divorce adds one more layer of complexity. Many people assume a divorce automatically revokes a prior designation to an ex-spouse. For ERISA-governed accounts (401(k)s, 403(b)s, employer 457(b) plans), federal law generally preempts state divorce revocation statutes. An ex-spouse named on the form may still receive those funds despite a divorce decree. IRAs may be covered by state revocation laws in some states but not others, and coverage varies.
The reliable approach in every state, for every account: check beneficiary designations after any life change and update accordingly if needed. Do not rely on legal presumptions to protect your family.
Which Accounts Have Beneficiary Designations
This (non-exhaustive) list is longer than most people expect:
- Traditional IRAs, SEP IRAs, and SIMPLE IRAs
- Roth IRAs
- 401(k), 403(b), and 457(b) employer retirement plans
- Life insurance policies
- Annuities
- Transfer-on-death (TOD) brokerage accounts
- Payable-on-death (POD) bank accounts
Each of these passes by contract to the named beneficiary. Most were opened at distinct moments in life: a first job, a second job, a refinancing that required new life insurance, an IRA opened decades ago. The designation on each likely reflected your planning goals and objectives at that moment.
Life changes. The forms don’t update themselves.
The most common triggers that necessitate updating beneficiary designations include: marriage or remarriage, divorce, death of a named beneficiary, birth of children or grandchildren, and the opening of new accounts without a review of existing ones. Each of these events can leave one or more designations pointing at the wrong person. Or no one at all.
This is not to say that a Will or a Revocable Living Trust is not an important component of your planning. Quite the opposite — while the types of accounts listed above pass by way of beneficiary designations, other assets such as real estate, certain investment accounts, bank accounts, and personal property require additional estate planning to ensure that your planning goals are met (often through a Will or Living Trust document). Additional titling is important to consider for these types of assets — particularly if a Living Trust is used as a means to avoid probate.
Primary vs. Contingent Beneficiaries
Every beneficiary designation should include both a primary beneficiary and a contingent beneficiary.
The primary beneficiary receives the account assets if they are alive at the time of the account holder’s death. The contingent beneficiary receives the assets if the primary has predeceased.
Naming only a primary with no contingent is one of the most common mistakes on beneficiary forms. When a primary beneficiary predeceases and no contingent is named, the account may pass through probate as part of the estate, or default to whoever the plan document specifies. Either way, the result may not reflect your planning wishes. For an IRA, passing to the estate means losing the tax-deferral advantages of the inherited IRA framework and potentially compressing the distribution timeline.
Consider a simple scenario: A husband names his wife as primary beneficiary with no contingent. His wife predeceases him. He does not update the form. When he dies, his IRA passes through his estate into probate. The account that could have gone directly to his children instead goes through a process that is slower and more expensive, while also subjecting beneficiaries to less favorable tax results.
Adding a contingent beneficiary is simple. Few protective steps in estate planning are this straightforward.
Per Stirpes vs. Per Capita: The Clause You’ve Never Read
Somewhere on most beneficiary designation forms, often in the fine print or in a dropdown menu online, is a choice most people have never noticed: per stirpes or per capita.
These Latin terms determine what happens when a named beneficiary predeceases you. The difference between them can be significant.
Per stirpes (Latin for “by the branch”) means that if a beneficiary predeceases you, their share is divided amongst their descendants. The inheritance travels down by family branch.
Per capita (Latin for “by the head”) means that if a beneficiary predeceases you, their share is redistributed equally among the surviving named beneficiaries. Descendants of the predeceased beneficiary receive nothing from that account. Forms may also use the term Pro rata (Latin for “in proportion”) which is similar to Per capital, but divides assets proportionally amongst surviving named beneficiaries based on the beneficiary designation percentages selected.
An example makes this concrete. You name three adult children as equal beneficiaries, each receiving one-third of the account. One child predeceases you, leaving two grandchildren.
Under per stirpes: the deceased child’s one-third share passes to those two grandchildren, split equally. Each grandchild receives one-sixth. The two surviving children each receive their original one-third.
Under per capita: the two surviving children split the entire account equally, each receiving one-half. The grandchildren receive nothing. The same result would be true under a pro rata distribution.
Which one you want depends on your family. The one on your form right now is the one that controls. Per stirpes generally preserves generational intent, keeping the inheritance flowing down family branches. Per capita and pro rata consolidates it among surviving named beneficiaries.
Many financial institution forms default to per capita, or provide no explicit choice. If a beneficiary predeceases you, your grandchildren may receive nothing from that account regardless of your wishes. Check the form. Look for this language. If you are unsure what your current designation says, contact the institution or your advisor.
And then make sure the SECURE Act hasn’t changed the stakes on who you’ve named.
The SECURE Act and Inherited IRAs: The 10-Year Rule
For most of the past few decades, a non-spouse beneficiary who inherited an IRA could stretch distributions over their own remaining life expectancy. Sometimes that meant 30 or 40 years of continued tax-deferred growth.
The Setting Every Community Up for Retirement Enhancement (SECURE) Act, signed into law in December 2019 and effective January 1, 2020, ended that for most beneficiaries.
Under what is now widely called the 10-year rule, most non-spouse beneficiaries must distribute out the entire inherited IRA within 10 years of the original owner’s death (per IRS Publication 590-B, 2025, and IRS inherited IRA guidance). There are no required annual distributions within that 10-year window, except when the original owner had already begun taking required minimum distributions before death. In that case, beneficiaries must also take annual distributions during the 10-year period rather than wait and distribute the balance in year 10. IRS final regulations published in July 2024 clarified this rule; the specifics are worth confirming with a tax advisor familiar with current requirements.
Who is exempt from the 10-year rule? The IRS designates certain “eligible designated beneficiaries” (EDBs) who may still use life-expectancy distributions:
- Surviving spouse: may treat the inherited IRA as their own “spousal rollover IRA”, which provides the most income-tax friendly option under the SECURE Act
- Minor children of the decedent: exempt until they reach the age of majority, at which point the 10-year rule begins
- Disabled or chronically ill individuals: as defined by IRS criteria
- Individuals not more than 10 years younger than the decedent: such as a sibling close in age
For everyone else (adult children, grandchildren, other relatives, friends), the 10-year rule applies.
The tax implications depend on the size of the account, the beneficiary’s income, and when they take distributions. Consider a $500,000 IRA inherited by someone in their peak earning years. That $500,000 must come out as ordinary income over 10 years. Distributed evenly, that is $50,000 per year in additional taxable income, stacked on top of whatever else that person earns. Bunched toward later years, the distributions may hit at higher rates. Taken in full in year 10, the tax bill could be substantial.
This changes optimal beneficiary strategy for many estates. Naming a spouse as primary beneficiary of a traditional IRA carries with it different tax implications than naming a trust for the benefit of a surviving spouse (which may be important from an estate planning perspective, but would carry with it a less favorable income tax result under the SECURE Act). Naming a spouse or adult beneficiary carries different tax implications than naming an adult child.
Further, whether to name children as outright beneficiaries or a trust for the benefit of a child, can greatly impact the income tax treatment and payment of these types of accounts. A careful consideration of estate planning goals, the child’s age, and the child’s ability to manage assets for themselves without any oversight must be considered.
(Source: IRS Publication 590-B, 2025; IRS, “Retirement Plan and IRA Required Minimum Distributions FAQs,” irs.gov, as of April 2026. Inherited IRA rules are subject to change. Consult a qualified tax professional for current guidance applicable to your situation.)
Naming a Trust as Beneficiary: When It May Make Sense
There are situations where naming a trust as the beneficiary of an IRA or retirement account makes sense: minor children who should not receive a large sum outright, a beneficiary with special needs, a blended family situation where you want to ensure equitable distribution, a beneficiary who cannot manage money independently, a beneficiary with significant assets of their own where estate tax planning may be relevant, or a situation where asset protection planning may be relevant to the beneficiary’s needs.
A trust can be named as IRA beneficiary. But it must meet specific technical requirements to qualify for “see-through” (or look-through) treatment. That qualification allows the IRS to treat distributions as going to the individual beneficiaries rather than to a non-individual entity, which would otherwise trigger less favorable distribution rules.
For a trust to qualify, it must meet four conditions: it must be valid under state law, it must become irrevocable at the account owner’s death, its beneficiaries must be identifiable from the trust document, and the trust documentation must be provided to the IRA custodian by October 31 of the year following the account owner’s death.
If those conditions are met, individual beneficiaries of the trust can potentially use the 10-year rule. If they are not met, the account may face an even more compressed distribution schedule: 5-ears if the original owner died before their required beginning date for RMDs.
Naming a trust as beneficiary also presents additional choices. One option is for the trust to be set up as a “conduit trust” where IRA distributions pass directly through to trust beneficiaries as they are distributed out of the IRA (and subsequently taxed as income of the beneficiary). The second option is for the beneficiary’s trust to be set up as an “accumulation trust” that can retain IRA distributions inside of the trust, to be distributed to the trust’s beneficiary as the trust’s trustee sees fit. This latter approach offers more control, but comes with the likelihood of significantly more income tax being paid, as income retained in a trust (including IRA distributions) is taxed at the compressed trust income tax rates (taxed at a rate of 37% for amounts over approximately $16,000). While this can be mitigated to an extent through certain planning strategies, they are complex and must be thoughtfully implemented..T
Naming a trust as IRA beneficiary is not a do-it-yourself exercise. It requires an estate planning attorney with specific expertise in retirement account beneficiary rules, coordinated with a financial planner who understands the tax implications. Each potential planning pathway — and its tradeoffs — must be carefully considered before implementing. Lifeworks is not a law firm, and this post is not legal advice. If your situation calls for a trust as IRA beneficiary, work with an estate attorney before making that designation.
For a broader look at how trusts fit into an estate plan, see our guide to living trusts vs. wills.
The Review Checklist
Most people have never done a systematic beneficiary designation review. A practical starting point:
Step 1: List every account with a beneficiary designation. Include all IRAs, 401(k)s and other employer plan accounts (current employer and any former employers), life insurance policies, annuities, TOD brokerage accounts, and POD bank accounts. Do not rely on memory. Pull statements or contact institutions if needed.
Step 2: Record who is named on each. For each account, note the primary beneficiary, the contingent beneficiary (if any), and when the designation was last reviewed or updated.
Step 3: Ask three questions about each designation. Does this person still reflect my wishes? Is this person still alive? If my primary predeceases me, does a contingent beneficiary exist?
Step 4: Flag accounts that need attention. Any account touched by a life event since the last review (a marriage, divorce, death of a beneficiary, birth of a child or grandchild) deserves an explicit review. So does any account with no contingent beneficiary named.
Step 5: Review the per stirpes vs. per capita designation on each form. Contact the institution if you are not sure what the current form says. Update it deliberately, not by default.
Step 6: Coordinate your beneficiary designations with your estate plan. If you have a trust, confirm whether any account should name the trust as beneficiary, and whether the trust is drafted to qualify for see-through treatment. An estate attorney can review the trust document; a financial planner can help think through the tax implications of each beneficiary choice.
This review typically takes less than an hour for most families. The failure to do it can take much longer to unravel. In cases like David’s, it may be impossible to correct once assets have already transferred.
Common Questions About Beneficiary Designations
Does a divorce automatically revoke a beneficiary designation?
Not always. The answer depends on the account type. For ERISA-governed accounts (401(k), 403(b), 457(b) employer plans), federal law generally preempts state divorce revocation statutes, meaning an ex-spouse named on the form may still receive the assets despite a divorce decree. For IRAs, some states have revocation-on-divorce laws that may apply, but not all states do, and coverage varies. The reliable approach: update beneficiary designations after a divorce, regardless of account type or state law.
What happens if I don’t name a beneficiary?
When no beneficiary is named, or when the named beneficiary has predeceased and there is no contingent, the asset typically passes through your estate. For retirement accounts, this eliminates the favorable inherited IRA tax treatment available to individual beneficiaries, may force a compressed distribution timeline, and adds probate costs and delays. Naming beneficiaries on every account avoids this.
What is the difference between primary and contingent beneficiary?
The primary beneficiary receives the account if they are alive at the account holder’s death. The contingent beneficiary receives it only if the primary has predeceased. Having both named on every account protects against the scenario where the primary dies before you do.
What is the 10-year rule for inherited IRAs?
The SECURE Act of 2019, effective January 1, 2020, requires that most non-spouse beneficiaries who inherit an IRA distribute the entire account balance within 10 years of the original owner’s death. No minimum annual distributions are required within the 10-year period, though IRS regulations require annual distributions during the 10-year period if the original owner had already begun RMDs. Exceptions apply for surviving spouses, minor children, disabled individuals, and beneficiaries not more than 10 years younger than the decedent. Source: IRS Publication 590-B (2025); IRS RMD FAQs, irs.gov, as of April 2026.
What does “per stirpes” mean on a beneficiary form?
Per stirpes means “by the branch” in Latin. If you designate beneficiaries per stirpes and one of them predeceases you, that person’s share passes to their descendants rather than being redistributed among the surviving beneficiaries. The opposite, per capita, would redistribute the predeceased beneficiary’s share among the remaining named beneficiaries, with nothing passing to the predeceased beneficiary’s children. Per stirpes is generally preferred by families who want the inheritance to flow down family branches.
Can I name my estate as beneficiary?
Technically, yes. In practice, it is usually a mistake for retirement accounts. Naming your estate as IRA beneficiary means the account passes through probate, which eliminates the tax-deferral advantages available to individual beneficiaries, potentially compresses the distribution timeline, and adds cost and delay. Most estate planning professionals advise against naming your estate as IRA beneficiary unless there is a specific reason that outweighs those disadvantages.
Can I name a trust as beneficiary of my IRA?
Yes, with important conditions. For a trust to qualify for see-through treatment, which allows distributions to be made to individual beneficiaries at more favorable rates, it must meet four technical requirements: be valid under state law, irrevocable at death, have identifiable beneficiaries, and provide documentation to the IRA custodian by a deadline. If these conditions are not met, less favorable distribution rules may apply. Further, the pros and cons of doing so must be carefully considered and should an estate planning attorney with specific expertise in this area.
How often should I review beneficiary designations?
After every major life event: marriage, divorce, death of a named beneficiary, birth of a child or grandchild. And at minimum every three to five years regardless of life events. Account balances change. Tax laws change. Family circumstances change. A designation that was thoughtful ten years ago may not reflect your current situation.
Key Takeaway
Beneficiary designations are among the most important documents in an estate plan. They are also the most commonly overlooked. They are contracts that pass assets to named recipients outside of probate, independent of your will, regardless of what your trust says, and in most cases regardless of what a divorce decree says. A designation filled out years ago and never revisited can redirect everything to the wrong person.
The SECURE Act changed the tax consequences of inherited IRAs substantially for most non-spouse beneficiaries. Who you name, and in what order, has meaningful tax implications for the people who inherit from you.
Reviewing your designations takes less time than most people expect. Doing it as part of a comprehensive financial plan, coordinated with your estate attorney and financial planner, gives the accounts you spend a lifetime building the best chance of reaching the people you intend.
Beneficiary designations don’t exist in isolation. They interact with your tax situation (especially under the 10-year rule), your estate documents, and your retirement income plan. These are all areas that a comprehensive financial plan considers and coordinates. If you’d like to discuss how your beneficiary designations fit into your overall plan, our team at Lifeworks is here to help.
Lifeworks is a registered investment advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor, estate attorney, and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance. Tax rules and estate planning laws are subject to change. Verify current rules with qualified counsel before making decisions.
Sources
- IRS. “Retirement Plan and IRA Required Minimum Distributions FAQs.”
- Internal Revenue Service, 2025. https://www.irs.gov/retirement-plans/retirement-plan-and-ira-required-minimum-distributions-faqs IRS. “Publication 590-B: Distributions from Individual Retirement Arrangements (IRAs).” Internal Revenue
- Service, 2024. https://www.irs.gov/publications/p590b#en_US_2024_publink100089895 ACTEC. “SECURE Act — Setting Every Community Up for Retirement Enhancement.” American College of Trust and Estate Counsel. https://www.actec.org/resources-for-wealth-planning-professionals/secure-act/
- U.S. Congress. “H.R. 1994, Setting Every Community Up for Retirement Enhancement Act of 2019.” 116th Congress, 2019. https://www.congress.gov/bill/116th-congress/house-bill/1994
- U.S. Congress. “H.R. 2954, Securing a Strong Retirement Act of 2022.” 117th Congress, 2022. https://www.congress.gov/bill/117th-congress/house-bill/2954
- IRS. “Publication 590-B: Distributions from Individual Retirement Arrangements (IRAs).” Internal Revenue Service, 2025. https://www.irs.gov/publications/p590b
- U.S. Congress. “H.R. 1994, Setting Every Community Up for Retirement Enhancement Act of 2019” (full text). 116th Congress, 2019. https://www.congress.gov/bill/116th-congress/house-bill/1994/text
- Justia. “Egelhoff v. Egelhoff, 532 U.S. 141 (2001).” Justia U.S. Supreme Court Center. https://supreme.justia.com/cases/federal/us/532/141/