Does Your Beneficiary Designation Override Your Will in Minnesota?

All right, retirement accounts and beneficiary designations. Let's take a quick look at them. I'm Andrew Ayers, an estate planning and business attorney based in Minnesota and New York City.

Let's look at a recent question from the estate planning subreddit. "Retirement accounts with no named beneficiary: does that actually pull them into probate? I've been sitting with this question for a while. My spouse and I went through our accounts last year and found an old 401(k) from a previous employer, one I had rolled over mentally but never actually touched the paperwork on. The beneficiary designation was blank. Not wrong, not outdated. Just blank."

Let's stop right there. This is a really common situation I see. You start out with a new job, you fill out paperwork, and then you move on to another job, and we just roll our accounts over, and we don't necessarily check things when they get rolled over. We just assume everything is okay. In this situation, our concern here is there's no beneficiary listed. Not the wrong person, not just an old form. Literally, there's nobody listed.

So back to the question: "From what I've read, a retirement account with no named beneficiary defaults to the estate in most cases, which means it loses the stretch provisions, goes to probate, and gets taxed on a compressed timeline. That's a meaningful difference from how we planned for it."

Let's break that one down quickly. What the stretch provisions are: they allow you to set up provisions in a trust where somebody doesn't necessarily take the full amount when you pass away. It can be stretched over time. Under the recent SECURE Act 2.0 from a couple of years ago, that time period has actually been compressed to ten years at this time. There are a lot of intricacies that go into this. The important thing is for you to understand what your beneficiary designations are, and work with your financial advisor to understand what those rules are when it comes to retirement accounts, whether they're inherited directly by a spouse or inherited by kids. There's actually a tax-preferred way to do that, versus just a general beneficiary designation to somebody who's not a family member.

Back to our question: "We updated it, but the experience made me realize we had never treated beneficiary designations as separate from the trust and the will. We reviewed the trust documents twice since drafting them, and never once pulled up the actual account statements to verify designations were still in place and pointing the right direction."

This is where your financial advisor, frankly, is very important, as well as your attorney. You should be reviewing these documents. I would recommend at least once a year with a financial advisor when it comes to beneficiary designations, and with your lawyer, we always recommend every two to three years, at least having a phone call to go through what's in your documents and make sure the right people are in the right places.

Then the question goes on: "How do other people handle this? Is there a practical cadence for checking these, or can an attorney help build that into the broader estate review so nothing falls through the gap again? The blank field wasn't a mistake anyone made on purpose. It was just something that got skipped and stayed skipped for years longer than it should have."

The poster shouldn't feel guilty about this. This happens all the time. It's a very common situation.

To the question of whether this is something your attorney can build in: one thing you have to remember is these beneficiary designations override your estate plan. So if your will says everything goes to my children, but your beneficiary designation has everything going to an ex-girlfriend, unfortunately for your children, that account is going to go where the beneficiary designation says it goes: to that ex, and not your children.

So it's a part of the process we want to make sure we stay on top of. And as I just mentioned, for beneficiary designations, at least once a year, check in and make sure they're correct. When it comes to estate planning documents, every two to three years you want to review things, especially when you have children. We want to make sure your guardians are still named the way you'd like them to be named. And if something happens to somebody, we want to make sure that the plans are updated for you, so that you have the right people performing the right roles in your estate planning documents.

The most basic principle here, the one that everyone should understand, again goes back to beneficiary designations overriding your will or your trust.

In this case, the poster had a pretty good estate plan put in place. They had a will, they had a trust, they were reviewing the documents. But these are documents that fall outside of that estate plan. These are your beneficiary designations, directly with your financial institutions.

It also highlights the importance of working with professionals, to make sure that you understand who the beneficiaries are and that they're being reviewed. You work with your estate planning attorney to check the estate planning documents. I would also bring in an accountant as well, so you understand what the various responsibilities and the various tax burdens can be from this. This is really going to be a team effort.

If you have more questions and you're in the state of Minnesota, New York, New Jersey, or Connecticut, feel free to reach out to me. My website is AndrewMAyers.com, and there'll be a link below in the comments. If you liked this video, you can hit the like or thumbs-up button below. You can head over to YouTube or AyersLawTV.com to subscribe for future episodes.

And remember that beneficiary designations are one of the easiest things you can do as part of your estate plan. You don't have to call an attorney. There's no cost to do them. But we want to make sure they are updated and listing the correct people, because if there is nobody listed, then yes, those assets go through your probate court. That beneficiary designation, without one, means it's part of your estate, and it may actually even create an estate tax problem if you're in a state that has an estate tax. So stay focused. Make sure you understand those beneficiary designations, so that you don't create a problem for your family that you weren't intending.