Top 5 Mistakes to Avoid with Beneficiary Designations in Estate Planning

Estate planning is about more than drafting a will or creating a trust. It is about making sure your assets pass smoothly and directly to the people you choose. One of the most powerful tools for this is the beneficiary designation.

Yet despite its simplicity, this tool is often misunderstood, misused, or ignored. Mistakes with beneficiary designations in estate planning can lead to delays, disputes, and outcomes that directly contradict your wishes. In some cases, these mistakes cause assets to go to the wrong person altogether.

This guide explains the top five mistakes families make with beneficiary designations and how to avoid them. By understanding and preventing these errors, you protect your legacy, your heirs, and the future you worked to build.

What Beneficiary Designations Really Do

Before diving into mistakes, it is worth understanding what designations are and why they matter.

Beneficiary designations are instructions you give directly to financial institutions or plan administrators. They tell the company who should receive an account or policy when you pass away.

Common accounts with beneficiary designations include:

• Life insurance policies
• Retirement accounts (IRA, 401(k), pensions)
• Bank accounts with payable-on-death (POD) clauses
• Investment accounts with transfer-on-death (TOD) instructions
• Annuities

The critical point: beneficiary designations override your will. If your will leaves your IRA to your spouse but your IRA paperwork lists your sibling, your sibling gets the account. The financial institution follows the form, not the will.

This makes designations one of the most legally powerful — and risky — parts of estate planning.

Mistake 1: Forgetting to Update After Major Life Events

Life changes quickly. Marriage, divorce, births, deaths, and blended families all reshape who you may want to receive your assets. One of the most common mistakes in beneficiary designations estate planning is forgetting to update forms after these changes.

Example: Divorce

A man divorces but never updates his life insurance policy. Years later, he passes away. His ex-wife receives the payout, even though his will leaves everything to his children. Courts consistently uphold beneficiary forms, even when they conflict with wills.

Example: Birth of Children

A woman names her brother as her retirement account beneficiary when she is young. She later marries and has children but never updates the form. When she dies, her brother receives the account instead of her children.

The Solution

Review all beneficiary designations every three to five years and after every major life event. Updating takes minutes but prevents decades of regret.

Mistake 2: Leaving Beneficiary Forms Blank

Surprisingly, many people leave beneficiary forms blank, assuming their will covers everything. This is a dangerous misconception.

When forms are blank:

• Assets may default to the estate.
• The estate must go through probate.
• Probate adds delay, expense, and public exposure.
• Creditors may reduce the estate before heirs receive anything.

The whole point of designations is to bypass probate and transfer assets directly. Leaving forms blank erases that advantage.

The Solution

Never leave a designation blank. Even if you are unsure, list a trusted person or a trust. At minimum, name a contingent beneficiary in case the primary passes before you.

Mistake 3: Naming Minors Without Planning

Parents often want to provide directly for their children. But naming a minor as a direct beneficiary creates complications.

Minors cannot legally control large inheritances. If a child inherits directly:

• Courts appoint a guardian to manage the funds.
• Guardianship proceedings add cost and delay.
• The child gains full control of the money at 18, regardless of maturity.

The Solution

Instead of naming minors directly, create a trust. Then name the trust as the beneficiary. This allows you to control how and when the funds are distributed — whether at specific ages, milestones, or for purposes like education.

Mistake 4: Ignoring Contingent Beneficiaries

A primary beneficiary may die before you. Without a backup, assets may default into the estate, forcing probate.

Example

A woman names her husband as her IRA beneficiary. He dies first. She never names a contingent. When she passes, the IRA flows into her estate. Probate delays distribution, and taxes reduce the account’s value.

The Solution

Always name at least one contingent beneficiary. Review contingents as carefully as primaries. They are your safety net.

Mistake 5: Allowing Conflicts Between Wills and Designations

The most common source of disputes is when wills and beneficiary forms conflict. Remember: designations win.

Example

A man’s will leaves all assets to his children. His old life insurance policy still lists his ex-wife. Despite the will, the ex-wife gets the payout.

The Solution

Coordinate your estate plan. Review designations, wills, and trusts together. Work with a lawyer to ensure everything aligns.

This integration is essential. Families who only update wills, but not beneficiary forms, risk creating expensive and emotional disputes.

Suggested Reading:

To see how unclear instructions can lead to conflict, read the article Sibling Rivalry: Estate & Trust Litigation. Similar disputes often arise when beneficiary designations are outdated or inconsistent.

Beyond the Top Five: Other Costly Mistakes

While the five above are most common, other errors also create problems.

• Failing to review regularly: Laws change, family situations evolve, and assets shift. Old designations may no longer make sense.
• Overlooking tax consequences: Certain designations may increase tax burdens for heirs. Lawyers coordinate tax strategy with designations.
• Not considering special-needs beneficiaries: Direct inheritance can disqualify them from benefits. Trusts protect eligibility.
• DIY confusion: Online forms without legal review often create mistakes or contradictions.

Why Lawyers Are Essential

A lawyer’s role is not just to draft wills. They review every piece of the estate plan, including beneficiary designations in estate planning. They:

• Identify inconsistencies between documents.
• Recommend trusts for minors or special-needs beneficiaries.
• Ensure contingent beneficiaries are included.
• Align designations with tax strategy.
• Prevent disputes by eliminating ambiguity.

This holistic approach protects assets, heirs, and legacies.

FAQs About Beneficiary Designations

1. Do beneficiary designations override wills?
   Yes. Financial institutions follow the form, not the will.
2. How often should I review designations?
   Every three to five years and after major life events.
3. Can I name multiple beneficiaries?
   Yes. You can split assets by percentages.
4. What if I want to change a designation?
   Complete a new form with the institution. Old forms become void.
5. Are designations private?
   Yes. Unlike wills, designations are not public record.

Checklist: Best Practices for Beneficiary Designations

• Always name a primary and contingent beneficiary.
• Review designations after major life changes.
• Coordinate designations with wills and trusts.
• Avoid naming minors directly.
• Update forms regularly to reflect your intentions.
• Seek legal review for complex estates.

Why Hackard Law?

Hackard Law has guided California families through estate planning for decades. We know that wills alone do not protect your legacy. Our team reviews every document, including beneficiary designations in estate planning, to ensure your wishes are honored.

We provide:

• Comprehensive estate planning reviews.
• Trust structures for minors and special-needs beneficiaries.
• Coordination of tax strategy with designations.
• Mediation when conflicts arise over outdated forms.

Our mission is to protect wealth, honor intent, and preserve family relationships.

Final Thoughts

Beneficiary designations may seem like simple forms, but they carry powerful legal weight. They override wills, bypass probate, and determine who inherits some of your most valuable assets. Mistakes with these forms can undo years of careful planning.

By avoiding the top five mistakes — failing to update after life events, leaving forms blank, naming minors directly, ignoring contingents, and creating conflicts with wills — families safeguard both wealth and relationships.

Handled with care, beneficiary designations in estate planning ensure clarity, speed, and fairness. Neglected, they create disputes, delays, and unintended outcomes. The choice is yours.

Contact Us

If you want to review your beneficiary designations or avoid common mistakes, Hackard Law is here to help. Contact us today to protect your family, your assets, and your legacy.