Four Of The Most Common Mistakes Made With Financial Account Beneficiary Designation Forms

We are dedicated to making sure that all of your estate planning goals are achieved.  Signing a new last will and sticking it in the filing cabinet is not enough.  You must immediately check the beneficiary designations you have placed on all financial accounts including, but not limited to, non-qualified brokerage accounts, IRAs, 401(k)s, 403(b)s, annuities and life insurance policies.  The beneficiary designations made directly on these accounts/assets take precedence over what you have directed under your last will.  If the beneficiary designation forms do not match the intentions under your will, your estate plan could be a less than optimal position.


Here Are Four Of The Most Common Mistakes Made With Financial Account Beneficiary Designations:

  1. Failure to Actually Name A Trust As Beneficiary.  We create trusts for clients to achieve many different benefits.  You must tailor your beneficiary designation forms to direct the proceeds to transfer to desired trust beneficiaries upon your death.  If you do not, the accounts/assets are likely to either pass outside of the trust plan altogether, or into it through your estate, but in a less tax advantaged way.  For example, if you create a trust under your will for a young child, but you name your child as the primary beneficiary, the protective trust planning will be thwarted!  This could be disastrous because your child will receive legal and outright control of their share of the account at the age of eighteen (18) which is often too young to manage significant assets properly.  This only one example of the bad results of failing to name a desired trust beneficiary.

Some of the most common trust planning options (that we write as a stand-alone irrevocable trust, under a will or under a revocable trust) are as follows:

  • trusts to protect assets for minor children who are not ready to manage inherited wealth.
  • trusts to provide long term divorce, creditor and asset protection for adult and capable beneficiaries.  Let us know if you want copy of our guide regarding this planning option.
  • special needs trusts to provide for disabled or incapacitated beneficiaries.
  • trusts for the surviving spouse in a second marriage situation where you want to ensure that the remainder goes to your children from a prior relationship.
  • IRA Trusts established to provide long term divorce, creditor and asset protection for the retirement assets that you leave for the benefit of your children and other beneficiaries.

All of these trusts are created with a specific purpose in mind.  Make sure to take the next planning step and name the desired trust as the beneficiary.

  1. Failure To Properly Name Trusts As Beneficiaries Of Retirement Accounts.  We do a lot of trust work for clients to help protect their IRAs and other retirement accounts for future generations.  Again, these trusts could be used to protect minor beneficiaries or they could be established to provide long term divorce/asset protection.  Regardless, the beneficiary designation forms should be tailored to direct the retirement accounts to specified trusts.  There should not be a generic reference to a trust for a beneficiary.  Remember, you are dealing with hundreds of thousands or millions of dollars of tax deferred (traditional) or tax free (Roth) retirement accounts and the IRS is just waiting for you to slip up so that they can start taxing as soon as possible.  Below are examples of “good” and “bad” beneficiary designations for retirement accounts:

The Good:  _____% to Descendant’s Separate Trust Under My Will (Article ______) Dated _____________ For the benefit of my son, ___________________________.

The Bad:  _____% to the trust under my will for my son, ___________________. OR “To My Estate.”

Be as specific as possible so that the IRS cannot claim that language used fails their requirements, thereby subjecting the retirement account to early taxation.

  1. Failure To Update Upon Divorce.  If you have gone through a divorce, you must immediately update all of your beneficiary designation forms.  Depending on state law, a named ex-spouse could still be considered a beneficiary if you have not affirmatively removed them by submitting a new beneficiary form, not likely the result you want.
  1.   Failure To Update Upon Death Of A Beneficiary.  If one of your beneficiaries passes away before you, you should immediately update your forms to reflect your current intentions.  When a primary beneficiary passes away, you need to make your new intentions clear.  DO NOT leave it for the company holding your account or for state law to decide.  Their decision might not match your desired result, thereby reducing a beneficiary’s share, causing higher taxes or preventing the account from receiving desired trust protection.


The beneficiary designation form is one of the most commonly overlooked parts of the estate planning process.  While we will provide you with the proper language to use following the signing of your planning documents, it is up to you to take that language and submit it to all of the necessary companies holding your accounts.  Additionally, it is up to you to monitor those forms and designations over time to make sure that life changes do not necessitate updating the beneficiaries.

As always, we are available to answer questions and assist with preparation of these forms.  If you would like us to send you the electronic version of the firm’s “Guide To Beneficiary Designation Forms” written by Douglas L. Kaune, Esq, please contact our office at (610) 933-8069.

Check out our other great articles throughout this site that more specifically address the different ways to protect and preserve your assets.   Click here for more articles!

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For assistance developing a comprehensive estate plan or nursing home asset protection plan in Pennsylvania, please contact Douglas L. Kaune, Esquire at (610) 933-8069 or email him at Doug’s entire practice is focused on elder law, Medicaid application, estate planning, trust planning, estate administration and protection of clients’ assets from nursing home spending and estate and inheritance taxation. Unruh, Turner, Burke & Frees, P.C. is a full service law firm which has three convenient office locations in Phoenixville, West Chester and Paoli, Pennsylvania. The firm primarily services clients in Chester, Montgomery, Delaware, Philadelphia, Bucks and Berks Counties, but can represent clients throughout Pennsylvania.