Beneficiary designations: the check most people skip

Most people believe their will decides who inherits their money. For a large share of a typical household's assets, it does not. This is the highest-value half hour in personal finance, and almost everyone skips it.

The form beats the will

Retirement accounts, life insurance policies, and any account with a transfer-on-death registration pass by the beneficiary designation on file with the institution, not by your will. For employer plans such as 401(k)s, federal law governs the outcome. In Egelhoff v. Egelhoff, the Supreme Court held that the plan must pay the named beneficiary even where state law would have revoked the designation after a divorce. The canonical failure is exactly that case: an ex-spouse who remained on a form from years ago inherits ahead of the current family.

Two more mechanics make the problem worse than it looks. A missing designation sends the asset through probate, which is slow and public and, for retirement accounts, can worsen the tax outcome for heirs. And a designation that names one child but not a later-born sibling, or that fails to say what happens if a beneficiary dies first, quietly encodes a plan nobody intended.

The audit, in five steps

1. List every account that carries a designation: 401(k)s and old employer plans, IRAs, HSAs, life insurance, annuities, and any bank or brokerage account with a payable-on-death or transfer-on-death registration.
2. Pull the actual designation on file from each institution. Memory does not count; the form controls.
3. Check primary and contingent beneficiaries against your current intentions, including what should happen if a named person predeceases you.
4. Fix mismatches with the institution's own form and keep the confirmation. For married 401(k) participants, naming anyone other than your spouse generally requires the spouse's written consent.
5. Put a repeat check on the calendar after every life event: marriage, divorce, births, deaths, and every job change that leaves an old plan behind.

The whole exercise costs nothing, requires no professional, and routinely catches errors with six-figure consequences. FINRA's investor guidance recommends exactly this review; the only hard part is remembering to do it.