Beneficiary Designations: The Documents That Override Your Will

This is the estate planning mistake that causes the most damage — and most people don't realize it until it's too late.

Certain assets pass outside your will entirely, directly to whoever is named as the beneficiary on the account. These assets include:

• 401(k), 403(b), IRA, and other retirement accounts
• Life insurance policies
• Payable-on-death (POD) bank accounts
• Transfer-on-death (TOD) brokerage accounts
• Annuities

Your will has zero effect on these assets. If your will says "everything to my children equally" but your 401(k) still names your ex-spouse as beneficiary, your ex-spouse gets the 401(k). Period. No court will override a valid beneficiary designation based on a contradictory will.

The Divorce Trap — Pennsylvania's Revocation Statute and Its Limits

Pennsylvania law (20 Pa.C.S. § 6111.2) provides that a divorce automatically revokes any beneficiary designation in favor of the former spouse — for life insurance, annuities, retirement accounts, and other non-probate transfers. The assets pass as though the former spouse predeceased the decedent.

Sounds like a safety net. It isn't.

Here's the problem: ERISA preempts state law for employer-sponsored retirement plans. The U.S. Supreme Court held in Egelhoff v. Egelhoff (532 U.S. 141, 2001) that a state revocation-on-divorce statute cannot override a beneficiary designation on an ERISA-governed plan. This means if your ex-spouse is still named as beneficiary on your 401(k) or employer pension, Pennsylvania's automatic revocation does not apply — and your ex-spouse collects the full account. The plan administrator follows the beneficiary form, not state law.

The Supreme Court reaffirmed this in Sveen v. Melin (584 U.S. 178, 2018), drawing a careful line: state revocation statutes apply to non-ERISA assets (individual life insurance, IRAs, annuities) but are preempted for employer-sponsored ERISA plans.

The "No Beneficiary" Problem

When an account has no valid beneficiary — because the named beneficiary predeceased the decedent, or the beneficiary form was never completed — the account typically defaults to the estate. That sounds fine, but it creates two problems:

• Tax consequences: For inherited retirement accounts, payability to the estate means the account must be distributed under the plan's default rules, which often require faster distribution (and faster taxation) than if a named individual beneficiary had inherited. Named beneficiaries get the benefit of the SECURE Act's 10-year distribution rule; the estate may not.
• Probate: The account must go through the probate process, with all the delay, cost, and public record that entails — the exact things many people set up beneficiary designations to avoid.

Per Stirpes vs. Per Capita — The Words That Matter

When naming multiple beneficiaries (typically children), the beneficiary form usually asks you to choose between "per stirpes" and "per capita" distribution. Most people check one without understanding the difference — and the difference matters enormously if a beneficiary predeceases you:

• Per stirpes: If a beneficiary dies before you, their share passes to their descendants (your grandchildren). If you have three children and one predeceases you, the deceased child's children split that one-third share.
• Per capita: If a beneficiary dies before you, their share is split equally among the surviving beneficiaries. The deceased child's children get nothing — the two surviving children each take half.

If your intent is "my kids, and if one of them dies before me, then that child's kids," you want per stirpes. If the form doesn't say, and the default is per capita, your grandchildren could be unintentionally disinherited.

The Slayer Rule

Pennsylvania's slayer statute (20 Pa.C.S. § 8802) provides that a person who is responsible for the death of the decedent forfeits all rights to any benefit from the decedent's estate — including beneficiary designations. The assets pass as if the killer predeceased the decedent. This applies to life insurance, retirement accounts, joint accounts, and all other non-probate transfers.

What You Need to Do

Every estate plan should include a beneficiary designation audit. Pull the current beneficiary forms for every retirement account, life insurance policy, annuity, and POD/TOD account. Compare them to your estate plan. Update any that are outdated, name a deceased person, or conflict with your current wishes. Check the per stirpes / per capita election. And do this again every time there is a major life event — marriage, divorce, birth of a child, death of a beneficiary.