Over the past few months, this column has covered what a will does in Georgia, why a will alone isn’t enough, and the documents that protect you while you’re still alive. This month, I want to address something that catches even well-prepared families off guard, which are the accounts that bypass your entire estate plan.
The Override Most People Don’t Know About
Retirement accounts (i.e., your 401(k), IRA, 403(b)), life insurance policies, and any bank or investment account with a payable-on-death or transfer-on-death designation all pass directly to whoever is named on the beneficiary form. They do not pass through your will. They do not pass through your trust. The beneficiary form controls, regardless of what your other documents say.
This is by design. These accounts are structured to transfer quickly and avoid probate. But the system only works in your favor if the forms are current. When they’re not, the results can be devastating.
How This Goes Wrong
I have seen families lose hundreds of thousands of dollars because a beneficiary form was never updated. A divorced spouse still listed on a retirement account. A deceased parent named as the primary beneficiary, causing the funds to go through that parent’s estate rather than going where the account holder intended. Another example is an account listing “my estate” as beneficiary, which sends the funds directly into probate and may trigger unfavorable tax treatment for inherited retirement accounts.
Georgia’s revocation-by-divorce statute automatically revokes certain provisions naming a former spouse in your will and trust. But federal law, specifically ERISA, governs most employer-sponsored retirement accounts, and federal law does not defer to your state divorce decree. If your former spouse is still named on your 401(k), that is where the money goes. Period.
The Fifteen-Minute Fix
The good news is that this is one of the simplest problems to solve. To fix it, all you have to do is log into each account, whether it’s your retirement, life insurance, bank accounts with POD or TOD designations, and verify that your beneficiaries reflect your current wishes. Check both your primary beneficiary and your contingent (backup) beneficiary. While you’re at it, make sure the designations align with your will, your trust if you have one, and your overall plan.
If you’re not sure how your beneficiary designations interact with the rest of your estate plan, that’s a conversation worth having with an estate planning attorney. A well-drafted will is essential. The living documents we discussed in my last column are essential. But a plan is only as strong as its weakest link, and outdated beneficiary forms are the link that fails most often.
In my next column, I’ll bring all of these pieces together with a simple year-end checklist you can use to make sure your plan is working the way you intend.
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