If you signed your will a few years ago, named your beneficiaries even earlier, and haven’t reviewed it since, you’re not alone.
A lot of people assume their will controls who receives everything after they die. In Texas, that’s often not true. Some of the most valuable assets pass by beneficiary designation, not by will. This includes many retirement accounts, life insurance policies, and, in some cases, bank or investment accounts.
That’s why a year-end beneficiary review is worth your time.
Why beneficiary designations matter so much
A beneficiary designation is the form or account setting that tells a company who should receive the asset when the owner dies. If an account has a valid beneficiary designation, that asset usually passes directly to the named beneficiary.
That means the account may pass outside your will and outside probate.
For many Texas families, this comes as a surprise. A person may have a carefully prepared will. However, an old IRA beneficiary form can still send that account to an ex-spouse, one child only, or someone else the owner no longer intended to benefit.
The problem is not always that the documents were poorly prepared. Life changes. People get married, divorced, have children, lose a spouse, become estranged from a relative, or change their priorities.
The year-end review people often forget
December is a good time to review beneficiary designations because people are already looking at financial records, insurance, tax documents, and end-of-year account statements.
This does not have to be a major project.
Start with the assets most likely to carry beneficiary designations:
- IRAs
- 401(k) and other workplace retirement plans
- Life insurance policies
- Annuities
- Transfer-on-death or payable-on-death accounts
- Some brokerage and bank accounts
The goal is simple: make sure the people named on those accounts still match your current wishes and estate plan.
A common Texas scenario
Consider a hypothetical example.
Mark is a widower in Texas with two adult children. He later remarries. Years before the remarriage, he named his children as equal beneficiaries on his IRA. After the remarriage, he signs a new will leaving most of his estate to his wife, trusting that she will be financially secure if he dies first.
But Mark never updates the IRA beneficiary form.
When Mark dies, the IRA will likely pass to the children named on the account, not according to the will. His wife may receive other assets, but not that IRA. If that was not Mark’s intention, the problem started long before anyone reached the probate court.
The reverse can happen too. Someone names a spouse years earlier, later intends to divide assets between spouse and children, but never updates the account forms. The result may be very different from what the family expected.
Your will is important, but it does not control everything
This is one of the most misunderstood parts of estate planning.
A will is still important. It can name beneficiaries for assets in the probate estate, appoint an executor, and address other planning concerns. But a will does not override every account contract you have already signed.
Beneficiary designations operate alongside your will. Both need to work together.
That coordination matters even more if your planning includes:
- A second marriage
- Children from an earlier relationship
- Minor children or grandchildren
- A trust-based estate plan
- A beneficiary with special needs
- A desire to stagger inheritances rather than distribute assets outright
A form that looked fine ten years ago may no longer fit the plan you actually want today.
Texas details that can affect the review
Not every account review is just a matter of “Who do I want to name?”
Texas is a community property state, and that can matter depending on when you acquired the property, how you funded the account, and whether the asset is separate or community property. Marital agreements, title, and the source of funds may also affect the analysis.
Family circumstances matter too. A person may want to provide for a current spouse, preserve assets for children from a prior marriage, or account for a child who is financially irresponsible, disabled, or receiving public benefits.
Sometimes the right answer is to name an individual directly. In other cases, naming a trust may make more sense. It depends on the account, the tax issues, the family structure, and the goals of the person making the plan.
That’s one reason estate planning is not a one-size-fits-all exercise.
What to look for during a beneficiary review
A practical review should answer a few basic questions.
Are the primary beneficiaries still correct?
Look at who is named first to receive the asset. If that person died, divorced you, or no longer fits your plan, you may need to change the designation.
Are the contingent beneficiaries up to date?
A contingent beneficiary is the backup person or persons who inherit if the primary beneficiary does not survive you. Many people either forget to name contingent beneficiaries or never revisit them.
Do the percentages still make sense?
If multiple beneficiaries are named, check the percentages. Unequal shares may be intentional, but sometimes they’re leftovers from a different time in life.
Does the designation match your broader plan?
If you updated your will or trust, review your beneficiary forms too. A mismatch between the documents can create confusion, disappointed expectations, and avoidable family tension.
Have you had a major life change?
Marriage, divorce, births, deaths, disability, retirement, and the purchase or sale of major assets are all good reasons to review beneficiary designations.
Don’t stop with death planning
Beneficiary review is important, but it is only one part of a sound plan.
Year-end is also a good time to review powers of attorney, medical planning documents, and the practical side of incapacity planning. If the right people don’t have authority to help during your lifetime, a problem can arise long before assets pass at death.
That doesn’t mean everyone needs a full overhaul each year. It means periodic reviews help keep your plan current.
A practical next step
Before year-end, make a short list of your retirement accounts, life insurance policies, and any accounts with payable-on-death or transfer-on-death designations. Then compare those designations to your current wishes and your existing estate-planning documents.
If everything still fits, that review is time well spent.
If you’ve married, divorced, had a death, had a birth, made a major account change, or shifted your family goals, it may be time to take a closer look.
General information can help you spot issues, but the right beneficiary designations depend on the facts of a particular person’s situation, including family relationships, property character, account type, and the rest of the estate plan.
If you want a simple way to gather your account information and think through what your family may need to know, the Texas Probate Risk Workbook can help you organize the details before you make updates.
If you want that review done carefully, Harvey L. Cox, Texas Estate Planning Attorney, has more than thirty-five years in practice helping Texas families think through those kinds of decisions.